ASX opens consultation into new features and timetable for DLT system set to replace CHESS
The new system, which introduces approximately 50 new business features, is estimated to go-live between the the fourth quarter of 2020 and the first quarter of 2021.
ASX is marking progress in its efforts to replace the Clearing House Electronic Subregister System (CHESS) with a new system based on Digital Asset’s (DA) distributed ledger technology (DLT).
Today, ASX released a consultation paper outlining the planned new features and timetable for replacing CHESS with a DLT solution as the post-trade infrastructure for Australia’s equity market. The consultation seeks feedback on the timing, testing and transition arrangements for the new system, and on the new business requirements captured in the plan.
The new system aims to provide users with more efficient clearing, settlement and other post-trade services through improved record keeping, reduced reconciliation, more timely transactions, and better quality data. But ASX also recognizes that users will require flexibility as to how they connect to the new system. That is why, they may choose to connect and transact by sending and receiving messages in a similar way as today or they may choose to take a DLT node and interact directly.
The DAML Software Development Kit (DAML SDK) being offered by DA will allow stakeholders to develop DAML based applications that integrate directly with a DLT node. This will allow them to leverage data and services they are permissioned to access and facilitate real time and deeper integration into their existing processes.
For those using messaged based interaction, ASX has previously announced its intention to replace the proprietary CHESS message protocol with the global standard of ISO 20022. This will streamline the existing suite of messages, facilitate more efficient processing and provide a richer data set. All permissioned users will also be able to request and access data they are entitled to through a modern, secure Application Programming Interface (API).
The list of new features is rather lengthy – let’s mention at least a few.
The new system will allow settlement participants to be able to request that ASX generate a Common Investor Number (CIN) as an investor identifier which can be linked to CHESS and issuer sponsored holdings. The request for, and use of, a CIN will be optional. The CIN will relate to a client of a settlement participant, including those financial products that are held in a CHESS holding sponsored by a settlement participant, held through a nominee company operated by a Settlement Participant, or are issuer sponsored holdings acquired using the services of a settlement participant.
The DLT-based system will facilitate the input by settlement participants of additional investor information which can be linked to a CHESS holding to facilitate the extension of certain corporate actions to the underlying beneficiaries of such financial products. For instance, the additional investor information could include: investor name and address; number of financial products (e.g. 100 CBA and 250 WBC shares) held in respect of that investor. This information will be additional to the registered holder information currently obtained.
Another new feature is the settlement lock for CHESS holdings. The new system will allow settlement participants to place a ‘lock’ on, or commit, financial products held in a client CHESS holding for delivery into its settlement account on the settlement day the financial products are due. To place financial products in a ‘lock’, the settlement participant will need to send a ‘commitment/lock’ instruction to ASX Settlement between the relevant trade date (T) and prior to the batch cut-off time on the scheduled settlement day. This will be generally be prior to 11.30 am on trade date plus two business days (T+2).
The new system will allow settlement participants on both sides of a bilateral transaction to pre-match the transaction earlier in the settlement period without committing the transaction for settlement. This functionality will allow a settlement participant to confirm a transaction is matched prior to the settlement day. As a result, this requirement will introduce a new ‘status’ or stage for a bilateral transaction of ‘pre-matched’ prior to it being ‘matched’ for those that wish to utilise this service enhancement.
Another new feature is the provision for DvP settlement of bilateral transactions outside the daily batch process in eligible foreign currencies. Under this requirement, ASX will not provide the FX conversions required to support settlement. Putting it otherwise, the settlement participants will be responsible for arranging any FX transactions to ensure they have the correct amount of agreed currency for settlement. ASX will introduce arrangements for foreign currency bank accounts to support settlement of these transactions. In addition, the Exchange will considerleveraging Austraclear facility arrangements for foreign currency settlement.
The new system is currently estimated to commence operation somewhere between Q4 2020 and Q1 2021. Migration testing is planned to begin in June 2020 and will culminate with migration dress rehearsal weekends in preparation for go-live.
Written submissions should be provided to ASX not later than June 22, 2018.
