The Australian Securities Exchange (ASX) is set to switch over its current clearing system — CHESS software (Clearing House Electronic Subregister System) to a more futuristic blockchain platform in 2018. ASX is the world’s first exchange to adopt the technology.
The primary aim of the new system is to make shareholding faster, secure, and cost-effective. ASX has been developing and testing the incorporation of the blockchain technology with its securities exchange for the past two years.
It hopes the use of blockchain, often referred to as distributed ledger technology (DLT), will provide more confidence to buyers and sellers. Blockchain uses advanced encryption to build a faster, tamper-resistant register of ownership and transactions.
Blockchain Technology: Cost-Effective Solution
ASX CEO Dominic Stevens said the company analyzed the distributed technology for a couple of years.
“We believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australian at the forefront of innovation in financial markets.”
The new technology was developed by New York-based startup Digital Asset Holdings. Digital Asset is famous mainly for being founded by former JPMorgan banker Blythe Masters.
Masters — also CEO of Digital Asset, said adoption of blockchain technology can serve the needs of the financial infrastructure. “After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential.”
In January 2016, ASX ventured $10.43 million USD in Digital Asset to develop a platform for the post-trading process. The investment came with a 5 percent equity interest in the startup.
ASX will finance the foundational phase of the development. Former ASX CEO Elmer Funke outlined the blockchain-based technology as a “once in a 20-year opportunity”.
Blockchain to Transform ASX Trading
The clearing and settlement of Australia’s $2 trillion AUD cash equities market will shift onto blockchain technology in the coming year. The transition is to launch for feedback by the end of March 2018.
Australia’s Treasurer Scott Morrison said: “We will continue to take action to support initiatives by our innovative fintech sector to ensure Australia is globally competitive in this rapidly growing market.” His endorsement indicated support from the federal government in the transformation.
Blockchain technology is often touted as being tamper-proof. However, the recent news of NiceHash losing $60 million due to hacking planted doubts into some minds. Blockchain and Bitcoin proponents counter that it’s never the blockchain itself that gets hacked, but the third party systems built onto it.
Michael McCarthy, marketing strategist for Australia’s CMC Markets, said the new technology’s success, “will rely on it being encrypted to be fully secure but if it can be hacked, it’s game over for blockchain.”
Did ASX make the right move in its choice of technology and developers? Let’s hear your thoughts.
Images via ASX, Pixabay