What to expect when the ASX updates its 1994 computer system


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The winds of change are coming to the Australian Securities Exchange (ASX), though when it comes to replacing CHESS, it's more of a slow breeze than a hurricane.

For long-term investors, CHESS, the computerised Clearing House Electronic Sub-register System of the ASX, is like a comfy pair of slippers - familiar but maybe not delivering optimal support.

It can be hard to recall that way back in 1994, when the ASX introduced CHESS, it was designed to process and speed up the transfer and settlement of stocks traded on the Aussie market. Back in the day, CHESS was innovative and efficient. And for almost 30 years, it has served investors well.

asx delays chess replacement

Fast forward to the 21st century, and technology has moved on. CHESS is now an ageing system. Even the Reserve Bank has come on board, declaring CHESS is "becoming harder to maintain and is less flexible than contemporary software".

Bogged down by delays

In late 2017, the ASX sent a ripple of excitement through the market, announcing that CHESS would be replaced with distributed ledger technology.

According to the ASX, when the new system goes live it will deliver "richer functionality, adopt global standards and use contemporary technology". All good stuff. The question is, when will it go live and what will it mean for investors?

To date, the process of replacing CHESS has been beleaguered by delays. The heightened market activity of the COVID pandemic in particular, may have triggered a re-think of the new system's capabilities as ASX monthly volumes rose from 38 million shares trades in February 2020 to a mammoth 67 million in March.

Reflecting this, the ASX announced a "replanning" of the CHESS replacement timetable due to the uncertainty created by the unfolding pandemic. By June 2020, a new go-live date of April 2022 was announced - 12 months beyond the original target. By October, the go-live date had been postponed yet again, this time until April 2023.

What's in it for investors?

With over two years left before CHESS is retired it's uncertain exactly what the new system will look like and what it will bring to investors. This is especially the case given the speed at which technology is evolving.

Nonetheless, a quicker, cheaper and more streamlined system will undoubtedly benefit investors. The ASX is keeping its cards close to its chest in terms of specific advantages for those investing in shares. That said, it has noted that the ASX is funding the CHESS replacement through its capital expenditure program, not by raising fees, which is ultimately good news for investors.

In addition, the CHESS replacement will not increase risks to investors. Nor will it eliminate the need for share registry services. On the contrary, the ASX says the new system will increase investor protections with more accurate ownership validation, and improved transparency in capital raisings.

It's reasonable to assume that other potential advantages may include faster settlement of trades, lower costs as a result of innovative technology (hopefully leading to cheaper brokerage), and faster electronic reporting of shareholdings.

There is also the prospect that the new system could see investors allocated a single identifier to replace the numerous numbers that can currently apply across different brokers and employee shareholding schemes. That would make life a lot easier for many of us.

Until April 2023 however, it's a case of watch this space. With at least two more years before the new system comes onboard, investors can expect business as usual for a while longer. That means re-embracing the familiarity of CHESS even if it is a memento of a past century.

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A former Chartered Accountant, Nicola Field has been a regular contributor to Money for 20 years, and writes on personal finance issues for some of Australia's largest financial institutions. She is the author of Investing in Your Child's Future and Baby or Bust, and has collaborated with Paul Clitheroe on a variety of projects including radio scripts, newspaper columns, and several books.