Michael McCarthy, chief market strategist for CMC Markets in Sydney, estimated that tens of millions of dollars could be saved by introducing the new technology.
ASX today announces its intention to replace CHESS using distributed ledger technology (DLT) developed by its technology partner Digital Asset (DA).
The decision, ASX announced [PDF] today, comes after "the successful build of [an] enterprise-ready" blockchain software that was put to "extensive suitability testing" over a two-year period to meet the "functional, capacity, security and resilience capabilities" expected by Australia's biggest stock exchange.
ASX uses CHESS to record shareholdings and manage the clearing and settlement of equity transactions in Australia. In a statement on its website the ASX said it would provide more detail in March 2018 about the timing for the move and the functionality of the system at its launch. In early 2016, it selected Digital Asset to replace CHESS with a next-generation post-trade platform using cutting-edge technology.
While blockchain technology is considered to uncrackable, the risks have been highlighted after Bitcoin mining marketplace NiceHash lost at least $60m this week when it was hacked.
Blythe Masters, Digital Asset CEO, said: "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". It does this while maintaining confidentiality and scalability - both critical for market infrastructures.
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.
Dominic Stevens, the ASX managing director and CEO, says the exchange has been carefully examining distributed ledger technology for nearly two-and-a-half years.
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 support the ASX's commitment to designing a system that does not raise barriers to access for non-affiliated market operators and clearing and settlement facilities", said Morrison.
The Exchange has so far given given over 80 DLT system demonstrations to more than 500 attendees, and conducted over 60 Chess replacement workshops for more than 100 organisations from across the financial services industry.