ASX banks on TCS BaNCS for core replacement

The Australian Securities Exchange (ASX) will contract TCS to deliver the replacement of its CHESS core system.

TCS - Tata Consultancy Services - will deliver a “product-based solution” to the ASX, based on its BaNCS for Market Infrastructure product.

This will offer the ASX “a modular technology platform for clearing and settlement services”, the exchange said.

It now intends to conduct additional stakeholder consultation on the system architecture in the first quarter of 2024 [pdf].

ASX dumped an earlier blockchain-based system to replace its CHESS core.

It has also engaged more with industry on the planned change, with the aim to “lift transparency” and rebuild stakeholder trust.

By selecting BaNCS, it has the option to add blockchain support via the Quartz plugin [pdf], but blockchain is not the foundational technology.

“ASX considers that the chosen product will allow it to provide a reliable, supportable and scalable platform that meets the needs of the Australian market now and into the future," the exchange said.

“It can satisfy the licence obligations of ASX Clear and ASX Settlement, and is capable of supporting potential new services and innovation from ASX or other providers.”

Back in October, ASX was given until the end of the year to devise a "comprehensive" plan to advance its end-of-life software and hardware in its clearing and settlement facilities.

The target date was fixed by the Reserve Bank of Australia (RBA) in an annual assessment of key ASX systems that enable market operations.

Under its plan, announced today, the ASX said it will launch the new platform in two main releases - first, the clearing service will be delivered, followed by the settlement and sub-register services in a second release.

ASX said stakeholder input was “key” to the announced strategic direction, incorporating responses from the CHESS Replacement Technical Committee, the ASX Business Committee and the Cash Equities Clearing and Settlement Advisory Group.

In July, ASX held a round a roundtable at the request of the Australian Securities and Investments Commission (ASIC) to engage industry participation on the CHESS replacement project.

“The next formal consultation with stakeholders will commence in the first quarter of 2024 and will cover the high level project plan and an indicative timeline for the releases, including the design, scope and timing for each of the releases,” ASX said.

“The indicative time frame for implementation of the first release (the clearing service) is 2026, and the scenarios being considered for the second release (the settlement and sub-register services) estimate implementation in 2028 or 2029.

“The delivery timeframes are subject to a number of factors including stakeholder consultation and detailed planning.”

ASX managing director and CEO Helen Lofthouse said when reviewing the CHESS replacement solution design, “We wanted to select a solution that would serve the whole market”.

“We significantly increased engagement during 2023 and the selected product, implementation approach and scope reflect discussion and feedback from various forums.

“We had clear objectives for our selection process. These included meeting current and future market needs and our licence obligations, enabling a safe transition from the incumbent platform, minimizing industry impacts where possible, and having the capability to provide interoperability and facilitate future innovation as driven by market demand.

“This next phase of the project will be a multi-year undertaking and ASX will maintain our investment in the current CHESS platform to ensure it continues to operate efficiently and reliably until the replacement is implemented,” Lofthouse said.

New plan costs

In the ASX statement, it noted its expected costs for the first release (clearing) of the project is “between $105 and $125 million to be incurred over multiple years, with the FY24 capital expenditure component captured in ASX’s existing FY24 capital expenditure guidance.”

It added FY24 total expense growth guidance of between 12 percent and 15 percent also allows for the first release of the project.

Further details on the second release are “to be determined in late 2024 following stakeholder consultation”.

“ASX also continues to evaluate the planning and sequencing of its technology modernisation projects more broadly, and will consider any implications for future capital expenditure guidance and update the market on any changes to that guidance as appropriate.”

ASIC and RBA response

ASIC and the RBA said the announced direction is important to steering the CHESS replacement back on track.

"This is an important decision by ASX, but there is still a long way to go to deliver a CHESS replacement," ASIC chair Joe Longo said.

“It will be critical for ASX to now focus on engaging with the market on the detailed design of the CHESS replacement program with a realistic and achievable timeline for implementation.”

The joint statement from ASIC and the RBA said “the advisory group considered that a product-based solution, presented by ASX, and assessed by it, is an appropriate option to support a safe and timely replacement of CHESS.”

RBA governor Michele Bullock said the advisory group’s input “will remain critical throughout the implementation phase of the replacement solution."

“It will also be critical for ASX to address the findings from various external audits and reviews so that past issues with the program are not repeated," she said.