Australian stock exchange’s blockchain failure burns market trust

In May, dealers, share registry operators, and clearing house representatives heard what they wanted to hear from Tim Hogben, head of securities and payments for ASX Ltd, which oversees the Australian stock exchange.

After seven years of work, a blockchain-based overhaul of the exchange's outdated software was virtually complete, putting ASX on the cusp of a world-first revolution that would allow it to increase trading volumes and more aggressively compete with international rivals.

Ninety-six percent of the software is presently being used for testing and operation. In audio and video obtained by Reuters, Hogben stated at a meeting for the Stockbrokers and Investment Advisers Association that 96% of the software was functional. Let me tell you, if it weren't working, you would know about it.

As a result of poor management, worries about the product's complexity and scalability, and trouble finding qualified personnel to maintain it, ASX gave up on the project in November. After Helen Lofthouse, the new CEO, requested an Accenture review, it was discovered that only 63% of the rebuild had been completed and that roughly half of the code needed to be redone.

Reuters was informed by more than a dozen brokers, other market participants, and those intimately connected to the blockchain project that the incident had damaged confidence in the Australian exchange operator. Some people expressed regret over the time and money they invested in the futile endeavor and over ASX's repeated promises that everything was well with the upgrade, which has gone through five delays since being supposed to begin in 2020.

The encounter also made it seem as though the technology that powers cryptocurrency doesn't always live up to its promises. One of the most important uses of blockchain-based technologies in a typical business environment would have been the use of a distributed ledger in Australia's crucial financial infrastructure.

According to Michael Somes, general counsel of Cboe Australia, a securities and derivatives exchange involved in the project, "The ASX could have picked a reliable and stable clearing and settlement system (but) chose a cutting edge, bleeding edge technology that was unknown, untried.

One of the most critical service mishaps ever observed in the financial markets worldwide was caused by ASX's decisions. Market participants estimate that they collectively spent about that amount preparing for the rollout, including on software upgrades, airfares, and employee hours spent participating in webinars and consultations, in addition to the A$245-A$255 million ($164-171 million) charge ASX plans to take for the fiasco. While apologizing for the mistake at a parliamentary session last month, ASX insisted it did not deceive the market or regulatory authorities. When questioned by lawmakers about a claim in the company's 2021 annual report that the project had "moved from the design and build phase to testing and delivery," Chairman Damian Roche responded that the claim only applied to "functional" portions of the software, not "non-functional" components like security and scalability.

According to an email from an ASX representative to Reuters, the company provided project updates based on the most recent information available, and some difficulties "only became apparent as we neared the latter stages."