ASX asks traders for blockchain feedback

The ASX has given itself until the end of 2017 to make the call on whether to take the plunge with a blockchain-powered central clearing platform.

The securities exchange is weighing the benefits of replacing its business critical CHESS settlement back-end - which secures and verifies Australian share trades - with a blockchain or distributed ledger system.

It will spend the next month fielding suggestions from investors and shareholders on the best way to move forward with its systems overhaul.

The ASX said that pilots of distributed ledger technology - used by cryptocurrencies like Bitcoin - had met targets for scalability, security and performance.

However, the exchange cautioned enthusiasts that its proposed approach “ is very different to the open internet-based, ‘permissionless’ blockchains such as Ethereum and Bitcoin”.

The next phase of testing will assess the ASX’s own brand of private-network blockchain against the needs of issuers, investors, intermediaries and regulators.

As part of its stakeholder consultation process, the exchange has revealed more detail on what its permissioned distributed ledger might look like.

The CHESS replacement it is currently prototyping will only be open to “appropriately licensed” participants that are known to financial regulators, and will offers rights of reversal and error correction post trades.

It is set to be hosted on a private, permissioned network operated by the ASX, where the private details of business contracts will not be shared with any other nodes in the network, encrypted or otherwise.

What is shared through the distributed ledger will exist only as hashes, and will be shared and replicated only as a synchronisation mechanism.

Between now and the end of 2017, the ASX plans to build its blockchain prototype to an “industrial scale” based on products being developed by its partner Digital Assets, in which it currently holds an 8 percent stake.

It plans to showcase the CHESS replacement prototype at its acceler8 incubator space for interested investors and traders to trial.

In the meantime it is also trying to gauge from stakeholders what other kinds of changes they would like to see added to the clearing platform, and the market’s appetite for system change.

One proposed enhancement is the adoption of ISO 20022 standard messaging in place of the current bespoke CHESS standard, which would mean companies trading in more that one securities market can integrate messaging.

The ASX acknowledged that “CHESS messaging has required bespoke and often comparatively costly implementation by participants operating in the Australian market”.

It is also weighing up offering same day settlements, real-time APIs that will tap into its market data, trade in multiple currencies, and attaching a legal holder’s name to securities throughout the lifecycle of a settlement for added protection.

The ASX said the new system will “minimise or eliminate” single point of failure, support automatic failover and will be designed to meet 99.95 percent uptime benchmarks.

Stakeholders have until 28 October to share their feedback.