Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Despite authorities taking their foot off the environmental, social and governance pedal and recent volatility in equities and bonds, the benefits of Artificial Intelligence and improved investor transparency are just beginning.
ASX prepares for life after CHESS with blockchain deal
Elmer Funke Kupper
The ASX has selected US-based firm Digital Asset Holdings,(Digital Asset) to develop solutions for the Australian market using ‘distributed ledger technology, joining 12 other financial services companies in taking a small shareholding in the company too.
ASX has paid A$14.9 million to acquire a 5 per cent equity interest in Digital Asset, fund an initial phase of development, and acquire a warrant that will give Australian exchange the right to purchase further equity and appoint a director to the board.
ASX announced early last year that it would replace or upgrade all of its main trading and post-trade platforms. The first phase of the program runs to the end of 2016 and will replace ASX’s existing trading and risk management systems. The second phase focuses on ASX’s post-trade services, including clearing and settlement of the cash equities market.
ASX will work with Digital Asset to design a new post-trade solution for the Australian equity market, potentially replacing CHESS, which provides clearing and settlement services. A final decision will be made on the new technology during 2017.
In a statement last week, ASX said: “The initial six to 12 months will be used to develop a solution that demonstrates the benefits that distributed ledger technology could bring to a broad range of users – including investors, listed companies and intermediaries. The development will take place alongside CHESS, which will continue to operate as normal.”
The standards that apply to regulated financial markets mean that the design of a solution will differ from the publicly available blockchain, ASX says. The architecture will be based on a private network whereby all parties that participate will be permissioned to do so – as they are today when they connect to CHESS.
Distributed ledger technology may be able to significantly simplify and speed-up post-trade processing, potentially removing risk and reducing backoffice administration and compliance costs. Investors could also experience significantly faster settlement of equity transactions – potentially in near real-time.
Elmer Funke Kupper, ASX managing director, said: “There has been very little innovation in the post-trade services that operate around the world for the better part of 20 years. Rather than replace CHESS with a new version that is based on the same legacy processes that operate in the market today, we should aim to re-engineer and simplify those processes to deliver significant benefits to the users of the market.”
