Australia’s stock exchange (ASX) is facing significant turmoil this week after a major technical failure exposed serious vulnerabilities within its systems. A disastrous multimillion-dollar upgrade program has left the exchange non-compliant with its risk management obligations, prompting sharp criticism from regulators.
In an unprecedented move, the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) issued a joint press release and letter accusing the ASX of jeopardizing “the stability of Australia’s financial system.” Regulators downgraded their official assessment of ASX’s compliance with financial risk standards, citing the failure as a severe breach.
Tech Failure Triggers Crisis
The crisis began in late December 2024, when a series of trades failed due to faulty code in the Clearing House Electronic Subregister System (CHESS), the critical platform used to record transactions on the Australian stock market. CHESS plays an essential role in ensuring transparency, allowing market participants to track ownership and trade movements.
According to the RBA’s official assessment, the root cause of the failure was an insufficient memory allocation in the CHESS system, which failed to handle the number of settlement participants on December 20, 2024. The error stemmed from “incorrect logic” in the system’s code, which had existed since 2014. The issue was only diagnosed two days later, with failed trades being processed on the following Monday.
Regulators Express Frustration
Both the RBA and ASIC expressed their growing concerns over the ASX’s handling of the issue, stating they were “increasingly concerned and deeply disappointed” by the lack of effective action over several years. This latest failure marks a turning point, prompting the RBA to revise its assessment of the ASX’s compliance with the Financial Stability Standards (FSS) for the first time outside the regular annual review cycle.
In a damning report, the RBA downgraded ASX’s performance from “partly observed” to “not observed” for two out of the four FSS, essentially deeming the ASX’s risk management practices inadequate.
ASX’s Response and Future Plans
In response to the regulators’ criticism, the ASX acknowledged the failure and outlined plans for improvement. Despite spending seven years and $250 million investigating a potential blockchain solution, the ASX has now shifted its focus to replacing the CHESS system incrementally over the next four years. However, regulators argue that this pace of change is too slow given the increasing strain on the existing system.
The ASX’s inability to quickly address these issues has led regulators to stress that the exchange is a critical component of Australia’s financial infrastructure. As a “vertically integrated monopoly provider,” the ASX carries a significant responsibility to ensure the stability of the financial system, and its failure to meet these obligations is now a serious concern.
Impact on ASX and Stock Price
The ASX, a public company with a market capitalization of $3.6 billion, has been under intense scrutiny following the incident. On Monday morning, ASX’s stock price fell by approximately two percent in the first hour of trading. In a statement addressing the downgraded compliance assessment, CEO Helen Lofthouse acknowledged the severity of the incident, saying, “While the settlement incident was unprecedented, we need to draw lessons from it and ask ourselves how we could do better.”
Lofthouse further emphasized the need for improved capabilities in areas like risk management and business resilience, while company chairman David Clarke reaffirmed the ASX’s commitment to rebuilding investor confidence in the wake of the crisis.
As the ASX grapples with the fallout from this major technical failure, the pressure is mounting on the exchange to restore stability and regain regulatory trust in its ability to manage Australia’s financial market risks.
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