By Michelle Huckel, Policy Manager, SIAA
Against the backdrop of ASIC’s Federal Court action against ASX for its cancelled CHESS replacement project, consultation on the system that will replace current CHESS rolls on.
ASX has released a lengthy and technical consultation paper outlining its proposed approach to the second release of CHESS replacement.
To recap, CHESS replacement will be implemented in two releases:
- Release 1 will replace the clearing component of CHESS, introduce a more efficient netting process and FIX messaging for trade registrations for all Market Operators. The scope of Release 1 aims to minimise disruption for clearing participants by maintaining the existing CHESS message interface and business processes, maintaining a familiar operational environment. ASX is targeting the implementation of Release 1 between mid-March to end-April 2026.
- Release 2 will replace the settlement and subregister functionality, deliver improved corporate action functionality and make further enhancements to clearing. It will also introduce global standard ISO 20022 messaging interfaces for Participants, share registries and payment providers.
ASX’s approach to staging CHESS replacement over two releases is a result of its desire to reduce delivery risk by separating the delivery risk of CHESS’s two primary components, clearing (Release 1) and settlement and subregister (Release 2).
Timeline for Release 2
ASX is working towards a go-live date for Release 2 in 2029. This go-live date would be dependent on successful industry testing, readiness and accreditation of the CHESS replacement system. ASX is seeking feedback on this proposed timeline.
The go-live date will also be dependent on whether the industry agrees to transition to T+1 and if so, when. Key industry feedback has indicated that a transition to T+1 is expected to take between 18 to 24 months, assuming that sufficient resources can be allocated by industry.
While a decision to transition to T+1 has not been made, the consultation paper includes four potential T+1 sequencing options and their impact on the CHESS replacement implementation timeline.
- T+1 immediately before CHESS replacement Release 1. ASX reports that there is very little appetite in the market to transition to T+1 immediately. ASX estimates that this option would result in an around 18 to 24 month delay to the completion of the CHESS replacement project, pushing Release 2 go-live to around 2031.
- T+1 between CHESS replacement Release 1 and Release 2: Again, ASX expects this would significantly delay Release 2 by around 18 to 24 months.
- T+1 at the same time as Release 2: ASX reports there is no industry support for the increased risk and effort associated with a simultaneous T+1 and CHESS replacement go-live.
- T+1 after Release 2: This is ASX’s proposed and preferred recommendation. If a decision is made to transition to T+1, ASX proposes that a T+1 go-live be at least 12 months after the CHESS replacement Release 2 go-live, placing T+1 transition at no earlier than 2030.
The risks of a single cutover for Release 2
A key issue that has been raised by stakeholders during consultation is the risks involved in a single ‘big bang’ cutover of Release 2 and whether additional staging of Release 2 could be introduced to further de-risk its implementation.
The consultation paper reports that ASX has assessed a range of potential options to further de-risk Release 2 including by staging cutovers by issuer, participant or function. However, ASX has concluded that further staging of Release 2 is likely to materially increase technical complexity, operational risk and delivery risk with little, if any, benefit to industry and as such, a single Release 2 remains the implementation option with the least risk and delay.
ASX is proposing various industry test phases and an implementation approach to mitigate the single cutover risk. Implementation of Release 2 will take into account key considerations arising from industry feedback including:
- Minimising overlap between Release 2 activities and ongoing Release 1 efforts.
- Granting early access to stable code on an iterative basis during the Software Provider Build and Test phase.
- Industry wide parallel testing that will form part of Industry Testing.
- Avoiding overlap of critical industry tests (such as Industry Wide Testing and dress rehearsals).
- Ensuring that Industry Test activities are scheduled to avoid the December/January holiday period.
- Factoring into Release 2 planning the technical foundations to enable a future move to T+1 settlement.
ASX is asking for feedback by 13 September 2024 and SIAA will be providing a submission to the consultation.
A link to ASX’s consultation paper is here.
