ASX to Implement Blockchain Technology by 2021

On Monday (August 26) the Australian Stock Exchange (ASX) announced that it plans to integrate blockchain technology into its share settlement and clearing system through a memorandum of understanding (MOU) with Digital Asset Holdings and software company VMware (NYSE:VMW). 

With an anticipated launch date in the first half of 2021, the ASX will be phasing out its existing CHESS system, which has been in operation for over 25 years. CHESS has primarily served asset registration functions in addition to post-trade settlement of shares and transferring physical shares into electronic form.

In partnership with Digital Asset, the ASX will migrate the system to distributed ledger technology (DLT). Distributed ledger technology is a database that has no central authority and acts independently across independent computers, often referred to as nodes.

Digital Asset has built a new blockchain prototype that the ASX began testing in 2016 for capabilities such as scalability, security and performance.

Digital Asset helps companies streamline and utilize blockchain technology. Headquartered in New York, Digital Asset has worked with companies such as Accenture (NYSE:ACN), KPMG, Deloitte and Infosys (NASDAQ:INFY).

“This new partnership is a very positive development that will help us support a wider range of DLT solutions developed by the industry,” ASX Deputy CEO Peter Hiom said in a press release.

Behind the rationale for moving to blockchain is greater agency and autonomy for individual investors, the ASX states. The ASX hopes the new system will not only be more simplified, but engender higher confidence and accessibility.

Among the other benefits of the new DLT system are market efficiencies such as speedier transaction times, improved record keeping and higher data quality, it also states.

As part of the joint project, VMware will provide cloud infrastructure and technical foundation at scale. VMware is a company that is principally engaged in multi-cloud, data center and security operations.

“VMware is now part of the mission we share with ASX to deliver a Digital Asset Modeling Language-based distributed infrastructure to realise the full potential of this technology,” Digital Asset CEO Yuval Rooz said in a press release.

The ASX has released a number of consultation papers in addition to listing several dates for stakeholder engagement, transition and focus groups.

The integration of blockchain into stock exchanges at a global scale has been taking place for a number of years. In 2015, the NASDAQ partnered with Chain to deploy blockchain for the transfer of shares in privately held companies. Similarly, in 2016 the Japan Stock Exchange began working with IBM (NYSE:IBM) for testing blockchain in capital market infrastructure projects. IBM worked closely with the Santiago Express stock exchange, based in Chile, in 2017 to improve security and reduce transactional errors within the exchange.

DLT initiatives will be brought to both Australian and New Zealander customers as part of the project. Over 50 companies from New Zealand are listed on the ASX.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.