The Australian Securities & Investments Commission (ASIC) has launched an inquiry into the Australian Securities Exchange (ASX) group after a number of “serious failures” across its licensees.
As of December 2024, ASX represented 79.6% of total dollar turnover in equity market products in Australia. Cboe Australia took the remaining 20.4%.
The inquiry will investigate how well the group complies with governance, capability and risk management requirements as a market licensee and clearing and settlement facility licensee, as outlined in the Corporations Act (2001). It may take the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act of 2024 into consideration.
Joe Longo, ASIC chair, commented, “ASIC’s decision to initiate an inquiry follows repeated and serious failures at ASX. ASX is ubiquitous, you simply cannot buy and settle on the Australian public equities and futures markets without relying on ASX and its systems.
“The inquiry provides an opportunity for ASX to bolster market trust.”
Members of the expert panel conducting the inquiry will be announced in the coming weeks, ASIC stated. It will be supported by an ASIC Secretariat, expected to include secondees from the Reserve Bank of Australia, the Australian Prudential Regulation Authority, and the Australian Competition and Consumer Commission.
The panel will be tasked with identifying whether organisational and cultural drivers contributed to ASX incidents of recent years, and whether the group is fit for purpose. It will assess whether measures are in place to rectify shortcomings and, if not, what changes need to be made.
Responding to the inquiry announcement, ASX chairman David Clarke stated, “We acknowledge the seriousness of this action, and ASIC’s inquiry will have our full cooperation.”
He also referenced existing efforts to make change at the group, as outlined in its 2023 five-year strategy.
“We have been working hard on a transformation strategy with several of the initiatives designed to strengthen culture and capabilities, operational risk management, business resilience and technology resilience, but we acknowledge there have been incidents that have damaged trust in ASX.”
Cited in the terms of reference for the inquiry are a 2016 hardware failure, which resulted in a delayed market open and an early close, and a November 2020 full-day outage caused by a failed software upgrade.
Three of the five incidents referenced by ASIC involve the CHESS Settlement system.
The first considers capacity issues during COVID, which forced ASIC to mandate reduced trading volumes, and the most recent refers to a batch settlement failure on 20 December 2024. The commission’s expert technical review of CHESS, which was announced in March, will run alongside the broader inquiry.
Perhaps most notable of the batch is the 2022 pause and later cancellation of the CHESS upgrade project, which is currently the subject of a legal case.
READ MORE: ASIC sues ASX over misleading CHESS replacement statements
The CHESS replacement system remains a priority at the group, with a recent consultation paper prioritising the project over shortening settlement cycles in the region.
READ MORE: Australia’s liquidity drought
Helen Lofthouse, managing director and CEO of ASX, noted, “We recognise the significance of this action by ASIC and we are committed to supporting the inquiry. This is a wide-ranging inquiry and it will provide an independent and transparent view of the work we have done, and the work we still have to do. It will be critical to ensuring our stakeholders can have trust and confidence in ASX. We will provide all the support required to ensure this inquiry is effective.”
