The Australian Securities Exchange (ASX), the eighth-largest sharemarket in the world, will replace its current system CHESS with the distributed ledger technology to manage the clearing and settlement for buying and selling stocks.
"ASX has been carefully examining distributed ledger technology for nearly two-and-a-half years, including the last two years with Digital Asset, in order to understand its potential application", ASX CEO Dominic Stevens said in a statement. But they will be working with Digital Asset Holdings, which is a blockchain startup by Blythe Masters, a former JP Morgan Chase banker, on the matter.
The ASX has been consulting on this decision for more than a year, and two years building and testing a prototype with Digital Asset, of which it owns 8.5 per cent, that could work at scale. We've given over 80 DLT system demonstrations to more than 500 attendees, and conducted over 60 CHESS replacement workshops for more than 100 organisations from the global financial services industry.
ASX managing director and CEO Dominic Stevens says the move puts the market operator "at the forefront of innovation".
ASX is Australia's primary securities exchange. A properly implemented blockchain provides a cryptographically secure transaction history that can provably show the transfer of digital assets using a tamper-proof, third-party auditable ledger.
On Thursday, the ASX said it will now work with stakeholders on finalising the scope of Day 1 functionality for the new system. "While we have a lot more work still to do, today's announcement is a major milestone on that journey".
Blockchain is a method of recording data via a digital ledger of transactions, agreements, contracts or anything that needs to be independently recorded and verified as having happened.
The bourse will replace its Clearing House Electronic Subregister System (CHESS) starting in March 2018, but the precise timing of the full transition is still unclear.
DLT software will settle and clear equity trades across a network where participants are known or "permissioned" to have access and must comply with the exchange's ongoing and enforceable obligations. It does this while maintaining confidentiality and scalability - both critical for market infrastructures.
The ASX also announced that it will exercise its right to participate in DA's recent Series B fundraising, subscribing for US$3.5 million in convertible notes.