Australia’s stock exchange operator has apologised and will pay a $20.5 million penalty to the corporate watchdog after admitting to misleading the market.
The deal means ASX Ltd will avoid a trial in relation to three statements made four years ago regarding the status of a multi-million-dollar project to upgrade its clearing and settlement system.
The work on CHESS involved replacing the 25-year-old technology with a distributed ledger, the same technology used by cryptocurrencies, such as Bitcoin and Ethereum.
ASX had told investors in a 2022 statement that the project was “progressing well”, but the Australian Securities and Investments Commission took legal action, saying that and two other statements were misleading and “exposed market participants to the risk of financial harm”.
As part of the deal between the bourse operator and the commission, and pending Federal Court approval, ASX will pay a penalty of $20.5 million and another $3 million toward the regulator’s legal costs.
“The market must have confidence in what the ASX says about its operations as these statements can be relied upon to make decisions,” ASX chair David Clarke said in a statement on Monday.
“When we stopped the CHESS project in November 2022 to reassess our whole approach, that tested market confidence in ASX and called into question the nature of the statement previously made.
“I am sorry ASX fell short.”
Having obtained an admission to the “progressing well” statement, the commission has dropped action related to the remaining two statements.
The new CHESS system eventually went live in April, after the upgrade was first approved in 2016.
Former chief executive Helen Lofthouse told AAP upon her departure in April that she had to make a tough call on the project when she took the top job in 2022, as it wasn’t delivering.
Pulling the plug led to legal action and angered investors and trading firms that had invested millions in their own upgrades in order to work with the experimental technology.
The ASX eventually regrouped, developing a new replacement for CHESS – a system that still runs on the decades-old computer language COBOL.
The new system can accommodate three times more volume than the current system, will be faster and is cloud-based, with Amazon Web Services as the bourse’s main partner.
The second stage, which will handle settlement activities, is targeted for delivery in 2029.
CHESS has continued to perform strongly since April, processing elevated trading volumes during a recent period of high global market volatility and underscoring its “resilience and scalability”, ASX interim chief Darren Yip said on Monday.
ASX said the penalty and costs of payment will be recognised as non-recurring and significant items, respectively, in its future accounts.