The ASX is going ahead with a blockchain-based core system

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The ASX is going ahead with a blockchain-based core system

CHESS overhaul will use distributed ledger technology.

The Australian Securities Exchange has made the official call to replace its core CHESS post-trade cash equities system with distributed ledger, or blockchain, technology.

The long-awaited decision follows more than a year of consultation with the market.

The ASX has spent the past two years building an "industrial strength" blockchain-based solution to determine whether the technology can work at the scale of the local equity market.

The exchange developed its "enterprise-grade" prototype with start-up Digital Asset, in which it holds an 8.5 percent stake, and has spent the past two years thoroughly testing it..

It had promised to make a decision on the CHESS replacement this month. CHESS is the system used by the ASX to record shareholdings and manage the clearing and settlement of equity transactions in Australia.

Today the company said using distributed ledger technology for CHESS would make it easier for customers to develop new services and lower their costs.       

"The testing confirms ASX’s confidence in the functional, capacity, security and resilience capabilities of DA's [Digital Asset's] application of DLT [distributed ledger technology] to meet the needs of Australia’s financial marketplace and maintain the highest regulatory and operational standards," the ASX said today.

It will now work with its stakeholders to finalise the scope of the go-live functionality of the new system, and will continue to consult with the market throughout 2018.

ASX stakeholders have previously encouraged the firm to delve even further into blockchain.

The new CHESS system's initial functionality and the planned transition timing will be released for market feedback at the end of March next year.

Distributed ledger technology, or blockchain, is the infrastructure underpinning Bitcoin. It operates as a decentralised, public ledger of every transaction made, with transactions verified and shared by a global network of computers.

The ASX, however, is implementing its own private distributed ledger network "where participants are known, ‘permissioned’ to have access, and must comply with ongoing and enforceable obligations".

"The system will be designed without access barriers to non-affiliated market operators and clearing and settlement facilities," the ASX said.

"It will also give ASX’s customers choice as to how they use ASX’s post-trade services. Customers will be able to connect in a similar way [as] they do today, with the addition of using contemporary global ISO 20022 messaging, or they may interact directly with the distributed ledger."

ASX CEO Dominic Stevens said the decision would put Australia at the forefront of innovation in financial services.

"While we have a lot more work still to do, today’s announcement is a major milestone on that journey," he said in a statement.                                                     

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