ASX to replace post-trading systems with blockchain-like technology

ASX Limited has invested A$14.9 million to acquire a 5 per cent equity interest in Digital Asset, which develops distributed ledger technology similar to the Bitcoin blockchain.

This investment will fund the second phase of developing a post-trade solution, and has a warrant to acquire more equity if conditions are met.

ASX announced in February 2015 that it will replace all of its main trading and post-trading platforms, with the first phase replacing existing trade and risk management systems. The first phase will go to the end of 2016.

The second phase will look at replacing the CHESS system it uses for clearing and settlement with Digital Asset, which will design a new post-trade solution.

ASX and Digital Assets will first develop a solution in 2016 that demonstrates the benefits of a distributed ledger, and how it serves a broad range of users from investors, to listed companies, to intermediaries.

After all stakeholders assess the benefits of this solution, ASX will decide if it will go ahead with the second phase of replacing its CHESS system with Digital Asset post-trade technology in 2017.

“ASX and Digital Asset will engage with regulators and government agencies to assess the benefits that a new solution could deliver to them, and ensure that any future post-trade solution will meet the high regulatory, operational and security standards that apply to Australia’s financial markets,” ASX said.

The main benefit ASX expects to gain from this technology is to significantly speed up post-trade processing, meaning faster settlement of equity transactions. This could result in potentially near real-time processing, ASX said.

It could also reduce back-office admin and compliance cost and remove risk, as the technology allows for simplification of the trading process, ASX said.

Some Australian banks have taken up distributed ledger technology to speed up payments.

Commonwealth Bank announced in in May 2015 that it is using Ripple Labs’ peer-to-peer, distributed payments network to quickly transfer payments between subsidiaries. CBA also joined global bank consortium, R3, to test blockchain trading with 10 other banks.

Westpac also started using Ripple last year to settle and clear payments the same day, as well as use it as a low cost means to make low-value international payments.

It also invested in bitcoin wallet and exchange service, Coinbase, through fintech VC firm, Reinventure Group. Westpac is the largest investor in this firm.