The Australian Securities Exchange (ASX) embarked on an ambitious journey to replace its 25-year-old Clearing House Electronic Subregister System (CHESS) with a state-of-the-art, blockchain-based platform.
Initially envisioned as a groundbreaking project to enhance efficiency, security, and scalability, the CHESS replacement project quickly turned into a cautionary tale.
The initiative faced repeated delays and escalating costs before its ultimate suspension in November 2022. Stakeholders, including market participants and regulators, expressed frustration with the project's mismanagement, questioning the feasibility of such ambitious undertakings.
Despite being heralded as a world-first use of distributed ledger technology (DLT) in a financial market, the ASX's CHESS replacement project encountered numerous challenges. The ripple effects of the failure impacted Australia's financial ecosystem, as trust in ASX's ability to manage critical infrastructure took a significant hit. This case study examines the series of missteps, governance issues, and technological challenges that led to the demise of one of the most ambitious financial infrastructure projects of its time.
In total, the project's failure has been projected to cost the ASX and its stakeholders upwards of AUD 250 million in direct expenses, with additional indirect costs stemming from lost time, diminished trust, and delayed market enhancements. ASIC Chair Joe Longo described the situation as "a watershed moment for governance in financial infrastructure." The failure also dealt a blow to the broader narrative around blockchain's transformative potential in finance. This detailed case study highlights the lessons other organizations can learn from the ASX’s missteps.
Background
The Clearing House Electronic Subregister System (CHESS) has served as the backbone of Australia's financial market infrastructure since 1994. Operating as the primary platform for clearing, settlement, and record-keeping of share transactions, CHESS has been critical to ensuring the efficiency and integrity of the market. However, as financial markets grew more complex, the aging CHESS system began to show limitations, including scalability issues and difficulty integrating with modern technologies.
In 2015, ASX initiated a strategic review of its market infrastructure. The review highlighted the need for a modern system that could support increased trading volumes, enhanced data capabilities, and real-time reporting. Blockchain technology emerged as an appealing solution, promising transparency, immutability, and efficiency. ASX partnered with Digital Asset, a New York-based fintech firm specializing in distributed ledger technology, to design and implement the new system. ASX CEO Dominic Stevens stated at the time: "Blockchain technology offers unprecedented opportunities to transform the way markets operate."
Stakeholders initially greeted the project with optimism. ASX promised significant benefits, including reduced reconciliation processes, enhanced market efficiency, and lower operational costs. The project was envisioned to be completed by 2020, with a transparent and collaborative approach involving market participants and regulators. However, these early promises soon gave way to skepticism as challenges mounted.
The scope of the project extended far beyond simply replicating the functionalities of CHESS. It sought to reimagine the entire post-trade process, embedding blockchain technology into critical financial infrastructure. This level of ambition introduced complexity, requiring extensive customizations, thorough testing, and close coordination among stakeholders. The ambitious scope, combined with technological and governance challenges, sowed the seeds of its eventual failure.
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Timeline of Events
2015: Strategic Review and Vision
ASX began a review of its aging CHESS infrastructure to identify a replacement. Blockchain technology was identified as a promising solution, leading to the selection of Digital Asset as the primary technology partner.
2017: Project Announcement
ASX formally announced the CHESS replacement project, promising implementation by 2020 and widespread benefits for market participants. Initial enthusiasm was tempered by questions about blockchain's suitability for such a critical system. Market analyst Sarah Klein noted, "The industry was excited but cautious about the risks of untested technology."
2018: Early Development and Testing
Development efforts commenced, with ASX emphasizing collaboration with industry participants. Early testing revealed scalability issues, prompting adjustments to project timelines.
2020: First Delays Announced
The COVID-19 pandemic disrupted timelines, with ASX announcing a revised implementation date of 2022. Stakeholders raised concerns about insufficient transparency in the project's progress.
2021: Mounting Challenges
Reports surfaced that Digital Asset’s blockchain platform struggled to meet performance benchmarks. Additional delays were announced, pushing the go-live date to 2023. ASX cited the complexity of integrating blockchain technology into existing workflows. "The timelines were ambitious from the outset," said finance professor Alan Morrison.
2022: Project Suspension
An independent review commissioned by ASX highlighted significant gaps in project management and governance. ASX officially suspended the project after further testing revealed that the platform was not fit for purpose. The total sunk cost reached AUD 250 million. Former ASX Chair Helen Lofthouse acknowledged, "This outcome is deeply disappointing and a stark reminder of the need for governance at every level."
What Went Wrong?
Underestimation of Complexity
ASX underestimated the technical and operational complexities of integrating blockchain technology into critical market infrastructure. Blockchain, while promising, required significant adaptations to meet the high-performance standards of financial markets.
Early limited feasibility studies failed to fully capture these challenges, leading to overconfidence in project timelines and deliverables. As technology consultant Mark Connors noted, "Blockchain was treated as a silver bullet without fully understanding the nuances of its integration."
This lack of understanding was evident in scalability tests that revealed major bottlenecks. Developers struggled to balance the decentralized nature of blockchain with the speed and efficiency demands of financial transactions. These challenges were compounded by the need to integrate the new system with legacy infrastructure.
Stakeholder Misalignment
The project suffered from inadequate communication and alignment with key stakeholders. Market participants expressed frustration over a lack of transparency and insufficient opportunities to provide input. "The ASX’s approach alienated many of us," said James Porter, a broker with over 20 years of experience. "We felt sidelined during critical phases of the project."
As a result, critical operational needs were overlooked, further complicating the implementation process. This misalignment created friction between ASX and its stakeholders, eroding trust and delaying progress.
Over-Reliance on Emerging Technology
Blockchain technology, though innovative, was still in its infancy when ASX committed to the project. Relying on an unproven technology for such a critical system introduced significant risks, including performance bottlenecks and integration challenges. "The decision to go all-in on blockchain was premature," said independent analyst Fiona Wong. "The technology wasn’t ready for the scale required."
Insufficient Risk Management
ASX failed to implement robust risk management practices, particularly in identifying and mitigating risks associated with scalability and performance. Testing protocols revealed issues late in the development cycle, compounding delays and costs. "By the time problems were identified, it was often too late to course-correct," observed consultant Ethan Harris.
Governance and Oversight Failures
Weak governance structures allowed issues to persist unaddressed. The independent review commissioned in 2022 highlighted a lack of clear accountability and ineffective oversight mechanisms. Decision-making processes were often slow and reactive, exacerbating project delays. ASIC Chair Joe Longo remarked, "Governance failures were at the heart of this project’s downfall."
Limited Independent Assurance
EY, contracted to provide assurance over the CHESS replacement project, failed to identify and escalate critical risks early in the development cycle. Their reviews often focused on procedural compliance rather than probing the feasibility and scalability of the proposed solution.
"Assurance without substantive scrutiny is a missed safeguard," said corporate governance expert Dr. Olivia Marks. The absence of deeper interrogation into the project's technical risks meant that systemic issues, such as blockchain's scalability challenges, were not flagged until significant resources had already been spent.
Reliance on a Single Supplier
ASX’s decision to rely exclusively on Digital Asset as the sole technology provider created significant dependencies and risks. With no alternative suppliers in place, ASX was unable to pivot when Digital Asset’s blockchain solution encountered performance and scalability issues.
"Diversity in supplier relationships is critical for mitigating risks," said IT procurement specialist Andrew Carter. The lack of competitive bidding also limited opportunities for ASX to benchmark costs or explore other technical solutions that might have been more suited to the scale and complexity of the CHESS replacement.
How ASX Could Have Done Things Differently
Conducting Comprehensive Feasibility Studies with Pilot Testing
ASX could have invested more time in understanding the practical implications of implementing blockchain technology at scale. Comprehensive feasibility studies combined with phased pilot testing would have provided crucial insights into technical and operational hurdles.
Diversifying Supplier Relationships
Relying on a single supplier limited ASX’s ability to pivot when issues with Digital Asset arose. Engaging multiple suppliers would have introduced healthy competition, fostered innovation, and mitigated the risks of over-dependence.
IT procurement specialist Andrew Carter noted, "Supplier diversity is key to building resilient systems. It ensures flexibility and access to alternative solutions when challenges emerge." A multi-vendor approach could have provided ASX with backup options during critical phases.
Enhancing Stakeholder Engagement
Throughout the CHESS replacement project, communication gaps between ASX and its stakeholders contributed to misaligned expectations and operational oversights. Greater stakeholder involvement, particularly from brokers and institutional investors, would have ensured that the system's design aligned with real-world needs. Regular workshops, feedback loops, and transparency around project milestones would have also helped build trust and resolve conflicts early.
James Porter, a veteran broker, emphasized, "Early and consistent engagement would have made a world of difference. We felt sidelined, which only added to frustrations as issues emerged." Greater collaboration would have ensured that critical user requirements were accounted for, reducing resistance and easing eventual adoption.
Establishing Independent Project Assessments
ASX could have benefited from appointing an independent body with the expertise and authority to oversee the project. This body should have had the remit to assess technical decisions, validate risk mitigation strategies, and ensure accountability across all project phases. Independent oversight helps flag early warning signs, provide actionable recommendations, and maintain transparency with regulators and stakeholders.
Dr. Olivia Marks, a corporate governance expert, noted, "Independent assessments bring objectivity and rigor to complex projects. They can challenge assumptions and prevent tunnel vision among project leaders." A well-structured independent review process would have provided additional scrutiny, particularly during critical milestones like vendor selection and scalability testing.
Strengthening Governance and Oversight
Effective governance structures are critical for large-scale projects like the CHESS replacement. ASX's governance approach, described as reactive and fragmented, left key risks unaddressed for too long. Strengthening governance frameworks with clear accountability, decision-making protocols, and escalation mechanisms could have prevented many of the delays and inefficiencies observed.
ASIC Chair Joe Longo remarked, "Proactive oversight and clear accountability are essential in projects of this magnitude. Weak governance structures create an environment where small issues can snowball into systemic failures." Implementing a robust governance framework would have fostered better coordination among teams, enabling timely responses to challenges.
Closing Thoughts
The failure of ASX’s CHESS replacement project serves as a sobering reminder of the complexities and risks involved in large-scale technological transformations. While blockchain technology holds significant potential, its integration into critical infrastructure demands rigorous planning, stakeholder alignment, and adaptive management.
This case illustrates the importance of balancing ambition with practical execution. Organizations must ensure that emerging technologies are validated through thorough testing and phased implementation before full-scale deployment. Equally crucial is the need for robust governance structures, transparent communication, and independent oversight to mitigate risks and ensure accountability.
The lessons from ASX’s experience resonate across industries undergoing digital transformation. By embracing a disciplined and collaborative approach, organizations can unlock the transformative potential of technology while safeguarding against avoidable failures.
Don’t let your project fail like this one!
Discover here how I can help you turn it into a success.
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Sources
> "ASX Abandons CHESS Replacement Project," Financial Times, 2022.
> "Independent Review of the ASX CHESS Replacement Project," Accenture, 2022.
> "EY CHESS Assurance Program Review," 2022-2024.
> "Special Report on CHESS Replacement," 2023.
> "Statutory Inquiry into ASIC and CHESS," 2024.
> "Challenges in Blockchain Adoption for Financial Systems," CIO Magazine, 2022. [https://www.cio.com]
> "Lessons from ERP and Blockchain Failures," TechRepublic, 2023.
Posted on Monday, January 06, 2025 by Henrico Dolfing