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Blockchain Clearing System Adopted By Australian Stock Exchange

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Blockchain down under, as Australia becomes first global market to adopt it for stock exchange

The main stock exchange in Australia has announced it will replace its current clearing system with a blockchain (or distributed ledger technology) system.

The decision will mean that Australia becomes the global market to adopt the technology, in order to record shareholdings and manage the clearing and settlement of equity transactions in Australia.

The Aussie decision comes after seven major European banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit) announced in the summer that they will built a Digital Trade Chain platform on IBM Blockchain.

bitcoin

 

Extensive Testing

Blockchain of course is a digital technology for recording and verifying transactions. Until recently, it has mostly associated as a global online ledger that underpins the bitcoin digital currency. Its transaction transparency makes it well suited for financial systems.

Indeed, the NASDAQ stock exchange in the US has been evaluating blockchain a while now to see if it could be used in trading of shares in private companies. IBM meanwhile has already predicted that most banks will adopt blockchain.

And now Australia is jumping aboard the blockchain train, after the Australian Securities Exchange (ASX) announced it would replace its current system and instead use distributed ledger technology (DLT or blockchain) developed by its US-based technology partner Digital Asset (DA), which has been developing the new system since January 2016.

ASX said the new tech will replace its CHESS system (Clearing House Electronic Subregister System), which it has used since the 1990s.

“Today’s decision follows the successful build of enterprise-grade DLT software for core equity clearing and settlement functions, and the completion of extensive  suitability testing by ASX and DA over the past two years,” said ASX.

It said the testing, done in conjunction with two independent third party security reviews of DA’s technology, had proved the “capacity, security and resilience capabilities” of the new system.

“The new system will be operated by ASX on a secure private network where participants are known, ‘permissioned’ to have access, and must comply with ongoing and enforceable obligations,” the exchange added.

ASX said the timeline for its transition to the new technology will be given by March 2018.

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Cost Saving

And ASX said the new system would save money going forward.

“ASX has been carefully examining distributed ledger technology for almost two-and-a-half years, including the last two years with Digital Asset, in order to understand its potential application,” explained Dominic Stevens, ASX MD and CEO.

“Having completed this work, we believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets.”

“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,” continued Blythe Masters, Digital Asset CEO.

“Together, DA and our client ASX have shown that the technology not only works, but can meet the requirements of mission critical financial infrastructure,”

Bitcoin Worry

It should be noted that it not just financial institutions that are looking at blockchain.

The British government in 2016 admitted it was looking at adopting blockchain technology to manage and keep track of the distribution of public money, such as grants and student loans.

However, the Bank of England did in 2015 warn about Bitcoin, when it said that the digital currency could pose a threat to financial stability in the UK should it see widespread adoption.

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