The Australian Securities Exchange (ASX) has confirmed that blockchain technology will replace its existing clearing and settlement system, becoming the world’s first major stock exchange to do so.
After over two years of real-world testing with multiple proofs of concept and prototypes, the ASX will become the first major securities exchange in the world to implement blockchain technology to its post-trade infrastructure – a core process. The permissioned blockchain, developed by New York-based industry startup Digital Asset, will replace the exchange’s current Clearing House Electronic Subregister System (CHESS).
The decision, ASX announced [PDF] today, comes after ‘the successful build of [an] enterprise-ready’ blockchain software that was put to ‘extensive suitability testing’ over a two-year period to meet the ‘functional, capacity, security and resilience capabilities’ expected by Australia’s biggest stock exchange. “We’ve given over 80 DLT system demonstrations to more than 500 attendees, and conducted over 60 CHESS replacement workshops for more than 100 organisations from the global financial services industry,” revealed ASX deputy CEO Peter Hiom.
Further, the exchange operator also revealed that the blockchain software successfully passed two independent security audits by third-party reviewers.
ASX managing director and CEO Dominic Stevens said:
ASX has been carefully examining distributed ledger technology for almost two-and-a-half years…Having completed this work, we believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets. While we have a lot more work still to do, today’s announcement is a major milestone on that journey.
In late 2015, ASX managing director Elmer Funke Kupper claimed the adoption of blockchain tech was a “once in a 20-year opportunity” to embrace digitization and curb the costs, timescales and complexities of the existing CHESS platform. Come January 2016, the ASX paid AUD14.9 million for a 5% equity stake in blockchain-startup Digital Asset Holdings, the latter which went on to develop ASX’s newly adopted blockchain solution.
The plan to implement blockchain tech reportedly met some friction through the trial phase from shareholders to maintain high-profit margins and dividend payouts. ASX has become the world’s most profitable major stock exchange this year, with a profit margin of 77%, ahead of the Hong Kong Exchange with a forecasted 71%.
However, the ASX’s announcement to adopt the decentralized technology is a significant endorsement of blockchain tech, which will make transactions cheaper, efficient and significantly faster without the need for a middleman.
Digital Asset CEO Blythe Masters added:
“After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential. Together, DA and our client ASX have shown that the technology not only works, but can meet the requirements of mission critical financial infrastructure.