ASIC report on ASX welcomed by SAFAA

The Australian Securities and Investments Commission’s (ASIC’s) report on the November outage of the Australian Securities Exchange (ASX) has been welcomed by the Stockbrokers and Financial Advisers Association (SAFAA), as ASIC has placed additional licence conditions on the ASX.

The ASX suffered the outage just over a year ago after the launch of a new trading platform and ASIC released its recommendations earlier this week.

The licence conditions were directed at mitigating risks for future upgrades, with specific emphasis on the oversight of the CHESS Replacement Program, due to go live in April 2023.

The new conditions included:

• Addressing the independent expert recommendations following the market outage and appointing an independent expert to assess the remediation;
• Appointing an independent expert to assess ASX’s assurance program for the implementation of the CHESS replacement program; and
• While the program is ongoing, requiring attestations from senior executives and the Board about technology project readiness.

Joe Longo, ASIC Chair, said the ASX outage was a very serious event, exacerbated by subsequent operational issues.

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“The imposition of these licence conditions will confirm that remedial actions are implemented appropriately and efficiently to address these operational issues – including for the critical rollout of the CHESS Replacement Program,” Longo said.

Judith Fox, SAFAA chief executive, said the uncertainty around whether orders had been filled, either partially or fully with attendant challenges in managing client expectations, was a key impact on market participants during the outage.

“The report points out that while Chi-X remained open for trading that day, it experienced very limited liquidity and trading activity as a result of the impact of the ASX outage,” Fox said.

“That impacted on the ability of market participants to submit new client orders to Chi-X. These were key issues raised by our members in consultations after the outage.

“While we point out that the circumstances surrounding every outage are different, improving these issues will hopefully provide much needed certainty and transparency for any future outage and help market participants meet their expectations.”

Dominic Stevens, ASX managing director and chief executive, said work to fulfil the new conditions was well underway.

“We are addressing each of the recommendations made in the report into the market outage and will appoint an independent expert to review our actions to meet the recommendations,” Stevens said.

“Where relevant, we are applying lessons from the outage to CHESS replacement and are strengthening the project by appointing an independent expert to assess the assurance program.

“I am proud of the work the team has done over the last five years to reduce outages and incidents across ASX by close to 90%.

“In addition, when CHESS replacement goes live in April 2023, a significant upgrade program across all levels of our equities technology stack will be complete, with the average age of our technology dropping from over 13 years old to four years old.”

ASIC also released a report into the outage that outlined ASIC’s expectations for market operators and participants, to improve market resilience.

The report noted the serious deficiencies in ASX’s and market participants’ ability to limit the impact on overall liquidity highlighted by the outage.

ASIC said it found this particularly disappointing in circumstances where some of these deficiencies had previously been raised by the regulator in ‘Report 509 Review of the ASX equity market outage on 19 September, 2016’.