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Australia’s market regulator has sued the country’s stock exchange, alleging it made “misleading and deceptive” statements about a plan to upgrade its clearing and settlement systems to blockchain technology.
The Australian Securities and Investments Commission, which regulates companies in Australia, said in a lawsuit filed on Wednesday that there had been a “collective failure” by ASX’s board and management when it tried to transfer its ageing systems for settling trades to a blockchain-based platform.
The upgrade, unveiled in 2017, was seen as one of the most ambitious projects to integrate crypto technology into daily trading on global capital markets.
But it was abandoned in 2022 after repeated delays, triggering criticism of ASX from the banking industry, government and Australia’s central bank.
In its suit, Asic cited a statement made in February 2022 by ASX that indicated the project was progressing well and on track to launch in April 2023.
But the regulator said the update was “misleading and deceptive” and “ASX did not have any reasonable basis to imply the project was on track to meet future milestones”.
Six weeks later, ASX said the upgrade would probably be delayed and appointed consultant Accenture to conduct a review. The consultant’s review found that the project was only 63 per cent complete.
Joseph Longo, chair of Asic, described ASX’s settlement systems as “critical national infrastructure” that had an impact on all the market participants that relied on the exchange.
“ASX’s statements go to the heart of the trust in the integrity of our markets. We believe this was a collective failure by the ASX board and senior executives at the time,” he said.
Asic said it had yet to determine what penalty it would seek as a result of the legal proceedings.
Helen Lofthouse, ASX chief executive, said in a statement that the exchange recognised the “significance and serious nature of these proceedings”.
The exchange handles all of the country’s share and bond trading, and initially hired Digital Asset Holdings, a US start-up headed by former JPMorgan banker Blythe Masters to help build the new digital ledger. It then hired VMware to join the project.
After it was abandoned, ASX appointed Tata Consultancy Services to develop a new clearing and settlement platform to replace the 30-year-old system known as Chess.
The ASX wrote off A$250mn ($166mn) in costs when it abandoned the project. Last year, it stripped former chief executive Dominic Stevens of about A$3mn worth of long-term bonus payments he had been due to receive, citing the blockchain upgrade failure and its effect on ASX customers.