About CHESS Replacement

The development of CHESS by ASX over 25 years ago enabled the successful dematerialisation of the cash equity market (the conversion of physical shares into an electronic format); a move to T+5 settlement (which was lowered to T+2 in March 2016); and improved the general efficiency and effectiveness of post-trade processing in Australia. CHESS was world-leading and led to the development of a proprietary electronic messaging standard because existing standards lacked the message sophistication to accommodate CHESS's functionality.

ASX performs these post trade functions on transparent and non-discriminatory terms of access, under the supervision of the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA).

Today, CHESS is the core system that performs the processes of clearing, settlement, asset registration, and some other post trade services which are critical to the orderly functioning of the market. CHESS continues to be stable and to effectively deliver these services. This is demonstrated by CHESS's average monthly service availability over the last five years of 99.99%. While there is nothing to indicate that CHESS will not continue to provide this service level, ASX is replacing CHESS with distributed ledger technology (DLT) which will provide a broader range of benefits to a wider cross section of the market. While ASX works on the implementation of DLT, it will continue to support and invest in maintaining the high performance and availability of CHESS.

ASX commenced a process of evaluating replacement options for CHESS in 2015. In January 2016, ASX selected Digital Asset as a technology partner to develop, test and demonstrate to ASX a working prototype of a post-trade platform for the cash equity market using DLT (one example of which is commonly referred to as ‘blockchain'). This initial phase of work was completed in mid-2016. By the end of 2017, ASX completed its own analysis and assessment of the technology which included:

• Comprehensive functional testing of the critical clearing and settlement functions currently performed by CHESS
• Comprehensive non-functional testing (scalability, security and performance requirements) for a replacement system when deployed in a permissioned private network
• A broad industry engagement process to capture users’ input on the desired new features and functions of a replacement solution
• Third party security reviews of the Digital Asset DLT based system.

In December 2017, ASX announced that CHESS would be replaced with distributed ledger technology developed by Digital Asset. A copy of the announcement is available on the ASX media release web page.

In April 2018, ASX released a public consultation paper on the new scope and implementation plan, leveraging the input gained from prior industry engagement on new features and functions. In September 2018, ASX responded to the feedback and confirmed the scope and timeline.

In December 2018, the technical documentation customer portal went live. ASX is adopting an iterative approach to the release of technical documentation.

In April 2019, ASX opened a Customer Development Environment (CDE) which has been progressively updated with drops of software code for customers approximately every two months. CDE allows customers to design, build and test system changes, access some of the new business functionality, and compare various access options.  

On 30 November, ASX opened the first of the integrated Industry Test Environments (ITE1) for the cash equities clearing and settlement system being built to replace CHESS. The opening marks an important and exciting milestone. ITE1 allows software providers (third party vendors who supply software to CHESS users as well as those organisations developing in-house systems) entry into an integrated test environment, which uses Digital Asset’s Daml smart contract development capability, VMware’s DLT (blockchain) platform and other infrastructure that underpins the new CHESS replacement system.

On 27 April, ASX opened the second integrated Industry Test Environment (ITE2) for the cash equities clearing and settlement system being built to replace CHESS. As communicated on 28 March, ITE2 opens with a dedicated onboarding period. Release notes have been published for this milestone and can be found here.