ASIC has commenced proceedings in the Federal Court against Australia’s largest market operator, ASX Limited, for allegedly making misleading statements related to its Clearing House Electronic Subregister System (CHESS) replacement project.
ASIC alleges statements made in ASX announcements on 10 February 2022 that the project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading.
ASIC alleges these statements implied the project was tracking to ASX’s announced project plan and was on track to meet future milestones, including “go-live” in April 2023. ASIC alleges those representations were misleading and deceptive because, at the time of the announcements, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones.
ASIC Chair Joe Longo said, ‘ASX’s statements go to the heart of trust in the integrity of our markets. We believe this was a collective failure by the ASX Board and senior executives at the time.
‘Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide ranging consequences across the market.
Mr Longo said ASX’s CHESS replacement is a technology project of fundamental significance, replacing critical national infrastructure crucial to the operation of the Australian economy.
‘Its critical importance was all the more reason ASX needed to ensure it told the Australian public the truth about how the project was tracking and whether it would be completed on time.
‘We allege that the true state of affairs as at 10 February 2022 was that the project was not “progressing well”, contrary to ASX’s announcement.
‘The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.
‘The CHESS replacement project must be managed effectively and transparently. Failure to do so can lead to a lack of confidence in Australia as a market to attract investment,’ Mr Longo said.
ASIC is yet to determine the penalty it will seek for ASX's alleged contraventions.
On 7 March 2024, ASIC announced ASX had paid a penalty of $1,050,000 following an ASIC investigation into its compliance with the market integrity rules. More recently, ASIC took action against a ‘pump and dump’ scheme and attempted manipulation of commodities markets. These proceedings underscore ASIC's commitment to ensuring all market participants comply with the law.
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Background
Ensuring the ASX has complied, and is complying, with its legal obligations is critically important to maintaining confidence in the integrity of the market given the important role ASX plays in developing and issuing recommendations on the corporate governance practices to be adopted by listed companies and is responsible for the governance of critical national infrastructure.
On 28 March 2022, approximately six weeks after making the statements, ASX announced that there was a strong likelihood of further delay to the go-live date of April 2023. Following that announcement, ASX engaged Accenture to undertake a review of the project.
That review identified significant challenges with the solution design and its ability to meet the ASX’s requirements. Following the release of the Accenture Report, ASX decided to pause the project and wrote down costs of $250 million.
CHESS replacement project timeline
|
Date |
Event |
|
January 2016 |
ASX determines to replace CHESS. |
|
December 2017 |
ASX engages Digital Asset (DA) to build the Ledger and Application for the CHESS Replacement System. |
|
April 2019 |
ASX establishes and makes available the Customer Development Environment for software developers to interact with and test parts of the Application. |
|
August 2019 |
ASX engages VMware to build the Ledger. DA continues to be engaged to build the Application. |
|
March 2020 |
ASX announces that it would be replanning the CHESS Replacement Project and the then go-live date of April 2021 would be delayed. |
|
28 October 2020 |
ASX announces the new plan including consultation on features of the Net Broker Obligation (NBO) and other business processes and a new go-live date of April 2023 (Published Plan). |
|
30 June 2021 |
ASX completes consultation on features of the NBO and publishes an updated implementation timetable. |
|
June to November 2021 |
ASX makes statements to the effect that it was releasing code in accordance with the Published Plan and was ‘on track’ for go-live in April 2023. DA records a red “RAG” delivery status in its reporting to ASX, meaning that there were material risks to its delivery in the time frames required and mitigants/resolutions were not in place to address that risk. |
|
30 November 2021 |
ASX opens a descoped Industry Test Environment 1(ITE1). |
|
Early December 2021 |
DA proposes a draft delivery plan to ASX which indicates a delay up to November 2022 for DA to complete the development of the Application. |
|
21 December 2021 |
ASX records a red “RAG” status for the CHESS Replacement Project overall and for the Application. |
|
3 February 2022 |
ASX’s Audit and Risk Committee is informed of the CHESS Replacement Project’s overall red “RAG” status. |
|
8 February 2022 |
Two meetings take place between ASX and DA representatives where the representatives discuss DA delivering to ASX a release candidate for a descoped ITE1 Accreditation. |
|
10 February 2022 |
ASX publishes its Half-Year Results Market Release, Presentation, Presentation Slides and announcement concerning retirement of the CEO. These announcements contain the tracking to plan, on-track to go-live and progressing well representations. |
|
28 March 2022 |
ASX announces that there is a strong likelihood of delay to the go-live date of April 2023. |
|
September to November 2022 |
ASX engages Accenture to review the Ledger and Application and produce a report concerning the CHESS Replacement Project. |
|
November 2022 |
ASX announces a pause to the CHESS Replacement Project, that it would reassess all aspects of the CHESS Replacement Project and that it had derecognised approximately $245-255 million (pre-tax) in capitalised costs. |
Editor's Note:
On 9 September 2024, orders were made for the progression of the proceeding. The case management hearing on 10 September 2024 was vacated. The proceeding has been listed for a further case management hearing on 4 December 2024 (Orders made on 9 September 2024).
Editor's Note 2:
At the case management hearing on 4 December 2024, further orders were made for the progression of the proceeding. The proceeding has been listed for a further case management hearing on 12 March 2025.