Chapter 6The ASX CHESS Replacement Project - Role of the regulators

Introduction

6.1This chapter discusses the committee’s inquiries into the role of the regulators, the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) in supervising the Australian Securities Exchange (ASX) Clearing House Electronic Subregister System (CHESS) Replacement Project. The chapter addresses:

the co-supervisory model for regulating clearing and settlement;

the international principles for financial market infrastructures; and

ASIC and RBA regulatory actions for the CHESS Replacement Project.

The co-supervisory model for clearing and settlement

6.2ASIC and the RBA historically shared regulatory responsibilities for clearing and settlement facilities under Part 7.3 of theCorporations Act 2001. Recently, the Australian Competition and Consumer Commission (ACCC) has joined the regulatory model. ASIC uses the term co-supervisory to describe the above sharing of responsibilities.[1]

6.3Given the challenges with the CHESS Replacement Project, the committee sought stakeholder views on whether the co-supervisory model for clearing and settlement was appropriate and effective. This section summarises:

the existing co-supervisory model;

reforms to the co-supervisory model;

views from inquiry participants on the co-supervisory model;

alternatives to the co-supervisory model; and

limitations of ASIC licence conditions.

The existing co-supervisory model

6.4The existing co-supervisory model has ASIC as the lead agency for regulating the provision of clearing and settlement facility services to the Australian market fairly and effectively, with the RBA as the lead agency for regulating the mitigation of systemic risks for clearing and settlement facilities. The model reflects the regulators’ particular mandates concerning clearing and settlement facilities. The focus on the fair provision of services in ASIC’s mandate includes but is not limited to concepts such as disclosure, a level playing field between large and small participants, and governance arrangements for a clearing and settlement facility.[2]

6.5ASIC’s regulatory responsibilities include:

advising the Minister about licence applications, licence exemptions, and changes to operating rules;

enforcing compliance with all obligations imposed on licensees;

administrative matters relating to licensing (receiving licence applications and operating rule changes) that the Minister has delegated to ASIC; and

subject to a Ministerial determination, setting mandatory clearing requirements for specified classes of over-the-counter derivatives.[3]

6.6The RBA has supervisory responsibilities for financial stability, including setting Financial Stability Standards for clearing and settlement facilities, and ongoing supervision and periodic assessment of clearing and settlement facilities against those standards. The RBA does not have statutory powers to enforce the Financial Stability Standards. The RBA determines whether clearing and settlement facilities are operating in Australia, which is relevant in considering whether a clearing and settlement facility licence is required.[4]

6.7The RBA and ASIC, together with the ACCC, also work together to oversee ASX's adherence to the Regulatory Expectations for Conduct in Operating Cash Equity Clearing and Settlement Services in Australia.[5] The ASX noted that:

…the majority of ASX's formal engagements with the RBA and ASIC take place [j]ointly with representatives from both agencies to discuss matters that are relevant to both agencies having regard to their particular focus. Formal engagements occur on a planned and ad-hoc basis. This is supported by a broad range of day-to-day administrative and operational engagements (such as calls and emails).[6]

6.8Further information on sharing responsibilities between ASIC and the RBA is available in a later section on the Principles for Financial Market Infrastructures.

Reforms to the co-supervisory model

Competition in clearing and settlement reforms

6.9The competition in clearing and settlement legislation that recently passed the Parliament:

provides ASIC with an additional rule-making power to facilitate competitive outcomes in providing clearing and settlement services; and

provides the ACCC with new powers under the Competition and Consumer Act 2010 to facilitate access to clearing and settlement services on terms and conditions that are transparent, non-discriminatory, fair, and reasonable (see chapter 2 for more details).[7]

Financial market infrastructure reforms

6.10Further reforms proposed for financial market infrastructure proposed by the Council of Financial Regulators would:

introduce a crisis management regime for licensed clearing and settlement facilities;

redistribute existing powers and decision-making authority between the regulators and the Minister to reflect their responsibilities; and

strengthen the regulators’ supervision and enforcement powers.[8]

6.11The second point above on redistributing existing powers would make proposed changes, including the following:

Powers of the Minister under the Corporations Act 2001 currently delegated to ASIC for licensing and supervision of Australian market licensees and clearing and settlement facility licensees would be transferred to ASIC and the RBA. (The current delegation from the Minister to ASIC includes powers for licensing, operating rule changes, exemptions, information-gathering, directions, and compensation regimes for financial markets.)

The Minister would retain powers not currently delegated to ASIC, as these are generally matters of strategic or national importance rather than operational matters. These powers include the approval of large shareholdings of a widely held market body on national interest grounds. The Minister would also retain a role in reviewing certain decisions made by the regulators.

The Minister’s power to suspend or cancel a licence, currently delegated to ASIC, would be transferred to ASIC.

The Minister’s power to require a special report from a clearing and settlement facility, currently delegated to ASIC, would be transferred to ASIC and the RBA.

The RBA would have the power to direct a clearing and settlement facility to provide specified information related to the RBA’s powers and functions under the Corporations Act 2001.

Transfer to the RBA of ASIC’s power to direct a clearing and settlement facility in certain circumstances to take specified measures to comply with the Financial Stability Standards or any other action the regulator considers will reduce systemic risk.

The RBA would be able to give directions to clearing and settlement facilities on specific matters where the RBA reasonably considers action is required to support financial stability.[9]

6.12For completeness, it is noted that financial markets, clearing and settlement facilities, financial benchmarks, and derivative trade repositories, are also regulated under the banking and financial services sector definition in the expandedSecurity of Critical Infrastructure Act 2018.[10]

Alternatives to co-supervisory models

6.13Alternative approaches in other key jurisdictions to Australia’s co-supervisory model include:

where a single regulator supervises an entity from both the conduct/licensing and the prudential/risk management perspectives;

a sectoral approach, where each regulator is responsible for regulation, supervision and oversight based on the respective legal framework and policy mandate of that regulator about a sub-set of the industry; and

a multi-layered approach, where multiple regulators operate together across different levels of government.[11]

6.14The ASX provided information on which models apply in a selection of jurisdictions (noting the United States (US) has a combined sectoral and co-supervisory model):

Co-supervisory – Australia, US, United Kingdom (UK), Canada, Germany, France, Japan, New Zealand;

Single – regulator – Singapore;

Sectoral – regulation – US, Hong Kong; and

Multilayer – European Union.[12]

6.15The above alternative models operate with different advantages and disadvantages to the co-supervisory model. For example, the single regulator approach offers the advantages of one regulator potentially having a more comprehensive information set on all activities of an entity and greater visibility over the totality of the regulated conduct. The key disadvantage of the single regulator approach is that one set of matters against a subset of regulatory objectives may attract a disproportionate amount of attention to the detriment of other regulatory objectives and a targeted approach may be more difficult to implement.[13]

6.16The ASX noted that advantages of a co-supervisory model include:

The specific and complementary regulatory remits have clearly defined regulatory objectives.

Each regulator may develop more targeted supervisory tools, metrics and approaches based on the scope of their specific legislative powers and prescribed objectives.

The specialisation and dedicated focus on specific objectives may lead to more efficiencies and improved outcomes over a longer time horizon.[14]

6.17The ASX noted that if the regulatory remit and objectives of the respective regulatory agencies are not clearly defined and considered holistically, some of the potential disadvantages of a co-supervisory model could include:

regulatory overlap and oversight duplication;

regulatory oversight gaps between the different agencies; and

inconsistencies in the regulatory objectives across the different agencies.[15]

Stakeholder views on the co-supervisory model

6.18ASIC suggested that the co-supervisory model applies an appropriate dual policy lens in circumstances that cover both the effective provision of those services relevant to licensed financial markets (ASIC) and the provision of those services in a way that mitigates systemic risk (RBA). ASIC indicated that it considers the co-supervisory model critical to effectively supervising clearing and settlement facilities, ensuring a broad range of considerations are supervised through the two mandates. ASIC also noted that there is significant regulatory leverage that can be applied by regulators working closely together.[16]

6.19ASIC indicated that it and the Council of Financial Regulators consider that the changes contemplated by the financial market infrastructure regulatory reforms will ensure that Australia’s regulatory regime for clearing and settlement facilities remains fit-for-purpose. The reforms will address gaps in the current regulatory regimes for different financial market infrastructures operating in Australia, including financial markets, clearing and settlement facilities, benchmark administrators and derivative trade repositories.[17]

6.20The ASX indicated that from its perspective, ASIC and the RBA work together closely to regulate clearing and settlement facilities.[18]

6.21Cboe indicated that it considers that the principle that underlies the co-supervisory model is sound and made the following observations:

At a high-level, ASIC acts as the conduct regulator and the RBA acts as the financial stability regulator. In most cases these objectives will be complementary, and our understanding is that the two regulators generally work together on most matters affecting clearing and settlement facilities. However, given the possibility for those two objectives to come into conflict, it is sensible that regulatory oversight is split.[19]

6.22Cboe provided the following further observations on the co-supervisory model:

The regulators have broad powers, including through license conditions and directions, to require financial market infrastructure providers to do or not do certain things.

The regulators are sufficiently sensitive to what is happening in the market.

Both regulators have sufficient means to obtain information from financial market infrastructure providers.

Regulators have sufficient tools to oversee financial market infrastructure.

Cboe was subject to ASIC’s close and continuous oversight process during its technology migration project in March 2023.

Noting the proposed financial market infrastructure reforms, a stronger emphasis on competition, competitiveness, and growth in the regulators’ mandates could help drive better outcomes for the Australian market.[20]

6.23The Stockbrokers and Investment Advisers Association[21] indicated that in its members’ view, given ASX’s unique position as a monopoly provider, there is a need for ASIC and the RBA to have resolution powers they can use in the event they have concerns regarding the orderly working of the clearing and settlement market (from the view of competition) caused by issues arising from the technology or the project.[22]

Limitations of ASIC licence conditions

6.24Part 7.3 of the Corporations Act 2001 establishes a licensing regime for clearing and settlement facilities in Australia. Licensing authority rests ultimately with the responsible Minister, with licence obligations specified in the Corporations Act 2001 – and in any supplementary licence conditions – administered by ASIC and compliance overseen jointly by ASIC and the RBA. A failure to comply with licence obligations may be a trigger for the exercise of enforcement powers. The Minister or ASIC may take enforcement action independently or on the advice of the RBA.[23]

6.25The licence conditions under which the ASX operates may have limited what regulatory actions ASIC could take for the CHESS Replacement Project because the ASX could meet its licence obligations with the current CHESS. ASIC drew attention to this limitation of its regulatory powers:

I note that our regulatory powers in relation to the ASX are limited, such as in imposing licence conditions and cancelling the licence, which would, as you know, have significant ramifications across the economy.[24]

6.26The ASX confirmed its view on the limits of the licence conditions at a hearing:

I think it is worth highlighting that the replacement project is a very large and complex project, but the delivery of our licence obligations at present is done by the current CHESS platform. So we continue to operate clearing and settlement very effectively. The current CHESS platform is working well.[25]

6.27ASIC noted that the Council of Financial Regulators advised the government on reforms to ensure a fit-for-purpose regulatory regime for the ASX to enhance Australia's market infrastructure more broadly. Those reforms include the now-passed legislation for competition in clearing and settlement and the proposed financial market infrastructure reforms. ASIC suggested that those reforms would provide powers to ensure ASX's compliance with the regulator's expectations.[26]

6.28For example, the new competition in clearing and settlement powers would allow ASIC to move regulatory expectations into rules that can be enforced without proving a licence condition has been breached. Previously, to impose a licence condition, ASIC would have to meet a threshold to prove that licence conditions had not been met. The new rules will enable ASIC to put specific rules on the ASX.[27] ASIC Chair, Mr Joe Longo, emphasised the difference between the current negotiated expectations (such as special reports) and the new powers to make and enforce rules.[28]

6.29Under the proposed legislation, ASIC could make rules such as requiring ASX to have the business committee provide input to the governance processes and transparent, non-discriminatory, and fair and reasonable pricing of clearing and settlement services, and commercial, transparent, and non-discriminatory access to clearing and settlement services. ASIC indicated how the rules process and enforcement may operate:

So we don't have to necessarily use things such as licence conditions and written directions. We could find them in breach of a specific rule.

If there's a breach of a rule of this nature, we could have a delegate make a decision on the enforcement action that we wish to take, which could be a pecuniary fine.[29]

Committee view

6.30The existing Australian co-supervisory model for clearing and settlement financial market infrastructure shares responsibility between ASIC, the RBA and now the ACCC. The committee was interested in whether the co-supervisory model may have contributed to ineffective supervision of the ASX and the CHESS Replacement Project. From the evidence it received, the committee considers that:

The co-supervisory model is the most common across relevant comparison jurisdictions.

The co-supervisory model has advantages, including the potential for:

complementary regulatory remits where regulatory roles are well defined and followed;

each regulator to develop more targeted supervisory tools, metrics, and approaches; and

the specialisation and dedicated focus on specific objectives, which may lead to more efficiencies and improved outcomes over the long term.

The co-supervisory model has disadvantages, including the potential for:

regulatory overlap and oversight duplication;

regulatory oversight gaps between the different agencies; and

inconsistencies in the regulatory objectives across the different agencies.

6.31The committee notes that the design of the existing co-supervisory model tries to capture the advantages and minimise the disadvantages identified above. The committee welcomes the inclusion of the ACCC to address some competition issues that have been discussed in more detail in chapter 2.

6.32The committee also notes that the financial market infrastructure reforms proposed by the Council of Financial Regulators would address some of the remaining disadvantages identified above and clarify responsibilities between the Minister and the regulators. Hence, the committee supports the Government bringing forward the financial market infrastructure reforms as recommended in chapter2.

6.33The committee further observes that the co-supervisory model, while sound, must be implemented thoroughly to be fully effective. The failure of the CHESS Replacement Project raises questions about whether the co-supervisory model was effectively implemented as discussed in the following sections.

Assessments against Principles for Financial Market Infrastructures

Principles for Financial Market Infrastructures

6.34Irrespective of the regulatory model adopted, clearing and settlement facilities are generally regulated based on the internationally accepted Principles for Financial Market Infrastructures (PMFI) issued by the Committee on Payments and Market Infrastructures[30] and the International Organization of Securities Commissions.[31] The PMFI are not legally binding; however, they can be adopted into local regulatory regimes directly or modified to suit the local environment and financial market infrastructure arrangements.[32]

6.35The PMFI cover financial market infrastructures including payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories. The PMFI are part of a set of twelve standards that the international community considers essential to strengthening and preserving financial stability.[33] The PMFI are intended to make financial market infrastructure more resilient to financial crises and participant defaults by incorporating feedback and experiences from previous financial crises. The PMFI and associated documents provide:

guidance for financial markets infrastructures on risk management, governance, and transparency;

five responsibilities of authorities to provide for the effective regulation, supervision, and oversight of financial market infrastructure; and

guidance to assessors for evaluating observance of the 24 principles and five responsibilities outlined in the PMFI.[34]

6.36ASIC and the RBA have a memorandum of understanding intended to promote transparency, help prevent unnecessary duplication of effort, and minimise the regulatory burden on clearing and settlement facilities. ASIC and the RBA have also agreed on the appropriate division of each PMFI between the two regulators, as shown in Table 6.1. Some principles are relevant to both regulators, and accordingly they aim to coordinate their supervisory activities where possible.[35]

Source: ASIC, Regulatory Guide 211: Clearing and settlement facilities: Australian and overseas operators: Appendix 2, December 2012, pp. 70–73.

6.37Seven of the 24 PMFI, which may be relevant for the CHESS Replacement Project, are described in further detail as follows:

2 Governance arrangements (ASIC & RBA): A financial market infrastructure should have governance arrangements that are clear and transparent, promote the safety and efficiency of the financial market infrastructure, and support the stability of the broader financial system, relevant public interest considerations, and the objectives of stakeholders.

3 Framework for the comprehensive management of legal, credit, liquidity, operational, and other risks (RBA): A financial market infrastructure should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks.

8 Clear and final settlement (RBA): A financial market infrastructure should provide clear and certain final settlement, at a minimum, by the end of the value date. Where necessary or preferable, a financial market infrastructure should provide final settlement intraday or in real time.

17 Operational risk (ASIC & RBA): A financial market infrastructure should identify the plausible sources of operational risk, both internal and external, and mitigate their impact using appropriate systems, policies, procedures, and controls. Systems should be designed to ensure a high degree of security and operational reliability and should have adequate, scalable capacity. Business continuity management should aim for timely recovery of operations and fulfilment of the financial market infrastructure’s obligations, including in the event of a wide-scale or major disruption.

18 Access & participation (ASIC & RBA): A financial market infrastructure should have objective, risk-based, and publicly disclosed criteria for participation, which permit fair and open access.

21 Efficiency & effectiveness (ASIC): A financial market infrastructure should be efficient and effective in meeting the requirements of its participants and the markets it serves.

22 Communication procedures and standards (ASIC): A financial market infrastructure should use, or at a minimum accommodate, relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing, settlement, and recording.[36]

6.38In 2015, a peer review confirmed that Australia's implementation was complete and consistent in most respects. A related peer report assessed that the Australian authorities observed all five responsibilities across all financial market infrastructure types.[37]

The 2014 joint assessment

6.39The 2014 assessment against the PMFI concluded that the ASX clearing facilities observe or broadly observe all relevant PMFI. The areas in which the ASX facilities have been found to observe the requirements of the PMFI broadly relate to the central counterparty’s model validation framework and investment policy, as well as three areas in which the RBA granted transitional relief from the corresponding requirements of the Financial Stability Standards: recovery planning, segregation and portability, and liquidity risk management. ASIC and the RBA made several recommendations to further strengthen the ASX facilities’ observance of requirements under the PMFI.[38]

6.40The 2014 assessment of the ASX against the PMFI indicated how that assessment relates to the RBA assessment of clearing and settlement facilities against the Financial Stability Standards:

The PMFI assessment draws heavily on the RBA’s assessment of the ASX clearing and settlement facilities against Financial Stability Standards.

The Financial Stability Standards are fully aligned with requirements in the PMFI and associated considerations that address matters relevant to financial stability.

The Financial Stability Standards do not incorporate several principles and considerations that are solely relevant to ASIC’s regulatory remit.

In addition, the Financial Stability Standards contain several more detailed requirements beyond the minimum standard set out in the PMFI.

The 2014 assessment report against the PMFI included information relevant to ASIC’s responsibilities to cover the full range of relevant Principles.[39]

6.41The assessments against the PMFI (other than the RBA assessments against the Financial Stability Standards) do not appear to have been published beyond 2014[40] and are not mentioned in ASIC’s submission to the inquiry.[41]

Regulators’ self-assessment of responsibilities for financial market infrastructure

6.42The PMFI establish five responsibilities of central banks, market regulators, and other relevant authorities for financial market infrastructures. ASIC and the RBA also undertook to periodically conduct and publish a joint self-assessment of how ASIC and the RBA have met the five responsibilities in their regulation and oversight of clearing and settlement facilities. The five responsibilities for authorities to self-assess against are:

A: Regulation, supervision, and oversight of financial market infrastructures;

B: Regulatory, supervisory, and oversight powers and resources;

C: Disclosure of policies with respect to financial market infrastructures;

D: Application of the principles for financial market infrastructures; and

E: Cooperation with other authorities.[42]

6.43Under responsibility E.5, the assessment guideline indicates that at least one regulator should periodically conduct an assessment against the PMFI:

At least one authority should ensure that the central counterparty and/or securities settlement facility is periodically assessed against the Principles and should, in developing these assessments, consult with other authorities that conduct the supervision or oversight of the central counterparty and/or securities settlement facility and for which the [Financial Market Infrastructure] is systemically important.[43]

6.44ASIC and the RBA provided the following response to responsibility E.5:

ASIC and the [RBA] have undertaken to ensure domestically licensed systemically important [clearing and settlement] facilities are periodically assessed against the PFMI. At a minimum.

ASIC and the [RBA] also assess annually against domestic regulatory requirements all licensed [clearing and settlement] facilities that meet the criteria in their respective policies…Since the [RBA’s Financial Stability Standards] are aligned with the stability-related PFMI, these annual assessments constitute annual assessments against the majority of the PFMI.

ASIC and the Bank share drafts of their respective assessments with each other prior to finalisation. The [RBA’s] practice is also to share its assessment reports of licensed [clearing and settlement] facilities operating in Australia with relevant overseas authorities prior to publication.[44]

6.45In July 2018, ASIC and the RBA published a self-assessment report which concluded that ASIC and the RBA jointly observe all relevant responsibilities, and identifies some actions for both regulators:

ASIC and the RBA would publish updated self-assessments against the Responsibilities for clearing and settlement facilities at least every five years or if there are material changes.

The RBA would look to develop a formal escalation and communications framework for incidents which considers cross-department, inter-agency and stakeholders’ needs.[45]

ASX self-assessment against the PMFI

6.46In December 2021, the ASX published a self-assessment against the PMFI. For the CHESS Replacement Project, the ASX self-assessment made the following statements:

The development of a Distributed Ledger Technology…enabled CHESS replacement system has attracted attention domestically and from across the global financial services industry. The creation of this solution is based on open, contemporary technology, which uses global standards and offers efficiency and innovation opportunities with permissioned, source-of-truth, synchronised data. This will allow customers to interact with ASX, and, if they choose, to interact with others who are on the permissioned network. The project has continued since the last publication of this document and has made good progress throughout FY21. Implementation of the new DLT-enabled CHESS system is expected to go live in April 2023.[46]

ASX has extensively consulted with the market regarding the new system to replace CHESS, including on new or amended functionality, updated technology and implementation of global messaging standards.[47]

6.47In December 2023, the ASX published another self-assessment against the PMFI. For the CHESS Replacement Project, the ASX self-assessment identified a strategic change:

In mid-November 2022, ASX decided to reassess all aspects of the CHESS replacement project following completion of an external review and its own internal assessment. Since the decision to pause the project, ASX has been assessing different solution archetypes and options to replace CHESS. The decision, along with indicative timelines was published on 20 November 2023.[48]

Committee view

6.48ASIC and the RBA indicated that every five years, they intended to publish updated regulator self-assessments against the responsibilities of regulators in the PMFI. The committee notes that the last regulator self-assessment was undertaken five years ago, in 2018. Given the problems that have arisen with the CHESS Replacement Project, the committee considers that it may be appropriate for the regulator self-assessment to be repeated soon.

6.49The committee recommends that the Australian Securities and Investments Commission and the Reserve Bank of Australia update their self-assessment against the regulator’s responsibilities under the Principles for Financial Market Infrastructures.

6.50The committee also considers that the current five-year interval between regulator self-assessments should be shorter. A three-year interval might have allowed an opportunity to check and adjust the supervision of the CHESS Replacement Project in 2021. The revised CHESS Replacement Project will deliver clearing services starting in 2026 and settlement services beginning in 2028 or 2029. As such, even if the regulators undertake another regulator self-assessment in early 2024, waiting until 2029 may be inappropriate, given the complexity and importance of the project. Hence, the committee recommends that the regulators move to a three-year interval between regulator self-assessments.

6.51The committee recommends that the Australian Securities and Investments Commission and the Reserve Bank of Australia adopt a three-year interval to update their self-assessment against the regulator’s responsibilities under the Principles for Financial Market Infrastructures.

6.52The committee is also concerned that the last joint assessment by ASIC and the RBA of the ASX against the PMFI was conducted in 2014. The committee notes that the ASX is conducting self-assessments against the PMFI. However, the committee notes that the ASX self-assessment against the PMFI in December 2021 gave a relatively optimistic outlook on the CHESS replacement Project, despite multiple delays arising from scalability and other matters occurring in mid to late 2020, as indicated in Table5.1. In contrast, the December 2023 self-assessment by the ASX announced a strategic change to CHESS Replacement Project. The committee encourages the ASX to ensure that its self-assessments against the PMFI are especially transparent about the status for all aspects of its work, including the CHESS Replacement project.

6.53The committee considers that the ASX self-assessments against the PMFI are important and useful, however are not a sufficient supervision mechanism. A more sceptical and inquiring PMFI assessment should jointly conducted by ASIC and the RBA on a regular basis. The committee notes that the RBA completes its assessment of the ASX against the Financial Stability Standards (see discussion in the next section) annually and acknowledges that the RBA assessment overlaps with many of the PMFI. However, the PMFI that ASIC is responsible for (outlined in Table 6.1) do not appear to be assessed regularly by ASIC and a joint assessment has not been done since 2014.

6.54The committee recommends that the Australian Securities and Investments Commission and the Reserve Bank of Australia regularly conduct joint assessments of clearing and settlement facilities against the Principles for Financial Market Infrastructure.

ASIC and RBA regulatory actions

6.55ASIC and the RBA have undertaken several other regulatory actions on CHESS and the CHESS Replacement Project. Those actions are summarised in this section, including:

annual RBA assessments of ASX clearing and settlement facilities;

ASIC’s regular monitoring;

the joint ASIC and RBA letters of expectations;

action to address confidence in the existing CHESS;

the special report on the ASX Portfolio, Program and Project Management Frameworks;

the ASIC investigation of ASX’s market disclosures; and

the establishment of the clearing and settlement advisory group.

6.56This chapter covers the regulators’ actions from 2016 onwards, once the CHESS Replacement Project was underway. Earlier actions by the regulators and Treasury on clearing and settlement services and competition are discussed in chapter 2.

Annual RBA assessments of ASX clearing and settlement facilities

6.57Since 2006–07, the RBA has conducted annual assessments of the ASX clearing and settlement facilities. In recent years, assessments have covered compliance with applicable Financial Stability Standards and the clearing and settlement facilities’ general obligation to do all other things necessary to reduce systemic risk. The four ASX facilities assessed by the RBA are:

two central counterparties – ASX Clear and ASX Clear (Futures); and

two securities settlement facilities – ASX Settlement and Austraclear.[49]

6.58The RBA’s 2022–23 assessment was that the ASX clearing and settlement facilities observe many of the Financial Stability Standards. However, several findings and recommendations were made including:

• Governance: The Bank has downgraded ASX to partly observed. The Bank welcomes the progress that has been initiated under the leadership of a new Chief Executive Officer, including increased accountability for executives. However, the Bank’s assessment is that the documentation supporting clear lines of accountability should be strengthened, along with the approach to stakeholder management and the effectiveness of ASX’s Internal Audit function. The Bank has also determined that the information reported to the boards needs to be more effective in assisting their ability to oversee the management of the key issues raised in this Assessment.
• Framework for the Comprehensive Management of Risks: The Bank has downgraded ASX to partly observed. The Bank continues to hold concerns about ASX’s risk management culture and the length of time ASX has operated at a heightened overall risk position.
• Operational Risk: The Bank rated ASX as partly observed. While ASX has made some progress towards addressing previous recommendations, ASX should place a high priority on the remediation of ageing assets. ASX should also continue to focus on the delivery of its cyber strategy and security capabilities in line with the rapidly changing threat landscape.

The Assessment also includes two detailed reviews:

•The current CHESS: While the review found that the current CHESS is broadly consistent with the [Financial Stability Standards], high priority should be placed on the management of ageing assets supporting the current CHESS, capacity requirements and bottlenecks, management of resources and risk management.

•Credit Risk: ASX’s [central counterparties] were rated as broadly observed. Several findings were identified relating to the adequacy of ASX’s stress testing framework.[50]

6.59The RBA assessment also identified an extensive list of open recommendations while requiring the ASX to prioritise the following recommendations:

• ASX should redouble its efforts to ensure that key issues are appropriately raised with the ASX boards to enable a robust level of challenge and focus. ASX should undertake a review of its board agendas, papers and minutes to strengthen the ability of the boards to debate and provide direction on the key issues raised in this Assessment.

• ASX should assess and implement cultural changes required to remediate the relationship between Internal Audit and the executive, while ensuring that Internal Audit remains an independent source of challenge.

• ASX should prioritise the implementation of short-term controls to mitigate the immediate risks of ageing assets. The Bank also recommends that ASX promptly devise and implement a comprehensive roadmap to remediate its currently identified ageing assets. ASX should also develop and implement a robust long-term strategy to ensure that technology assets are proactively managed and renewed well before they approach obsolescence.

• ASX should implement a robust annual process of updating the CHESS Roadmap (ASX’s plan for addressing support and maintenance requirements for the current CHESS) to ensure that all planned upgrades and material changes to CHESS are incorporated.

• ASX should facilitate effective stakeholder engagement. In particular, it should actively consult stakeholders on the solution redesign, project and implementation timeline for CHESS replacement.[51]

6.60The 2023 RBA assessment noted that in its 2021 assessment it had recommended that the ASX’s Clear and Settlement boards require the clearing and settlement lead executives to complete an annual self-assessment of compliance with the Financial Stability Standards. The ASX’s self-assessment identified some gaps in addition to those already identified by the RBA. The RBA indicated that:

It considers the self-assessment process to be an important method for the ASX to identify potential or emerging risks in a timely way.

For this first self-assessment, the ASX enlisted a consultancy firm to facilitate the process.

In subsequent self-assessments, the RBA expects a greater degree of involvement in the process by the clearing and settlement lead executives as the accountable persons for meeting regulatory obligations.[52]

Dec 2016 - Review of the ASX equity market outage in September 2016

6.61In September 2016, the ASX equity market suffered a significant outage due to a hardware failure in its equities trading system, ASX Trade. The initial technology failure triggered a number of events that delayed the opening of the ASX market, caused it to close early, damped liquidity, widen spreads, and cancel over 100 trades and three thousand transactions. The outage also affected the operation of the Chi-X market and caused considerable uncertainty among market users, stifling trading volumes on the day.[53]

6.62In December 2016, ASIC published a review of the above outage, finding that the ASX broadly adhered to its procedures for incident management and its communications protocol. The review made recommendations on the following areas to the ASX:

identifying and addressing dependencies on the ASX;

mechanisms to allow for subsets of securities to be traded;

strengthen business continuity and disaster recovery;

more comprehensive and robust technology monitoring;

improving enterprise level system architecture;

improvements to communications strategies during incidents; and

reviewing and reporting on operational risk arrangements.[54]

6.63The review also made recommendations to other market participants on their arrangements for dealing with market outages and business continuity planning.[55]

Sep 2018 - Review of ASX Group’s technology governance and operational risk management standards

6.64Following the 2016 ASX Trade outage, ASIC required a more extensive review of the ASX’s technology governance and operational risk management arrangements, drawing on the expertise of a third party. At ASIC’s and the RBA’s request, the ASX appointed KPMG to benchmark the ASX’s technology governance and operational risk management arrangements against internationally recognised standards. The report concluded that the ASX’s arrangements for managing operational and technological risk have historically served the Australian market well. The review found that the ASX’s practices were more comparable to those of other global exchanges but lagged behind the better practices in the broader financial services sector.[56] The review report noted that:

ASX Group recognises the areas for improvement identified in the review. It is undertaking an extensive work program to implement all of the recommendations and had commenced work on almost half of them either before the review started or before the recommendations were finalised.

More broadly, the ASX board has placed additional focus on risk over the last year and, independently of this review, ASX Group has also taken steps to improve its technology governance and operational risk management. This included the appointment of several key senior executives across enterprise risk and technology, as well as making changes to internal governance arrangements.

ASX Group expects it will take up to three years to fully implement and embed all the recommendations from the review. It anticipates a significant component of the action items in this work program will be completed by the end of 2018.[57]

Oct 2020 — Joint statement of expectations for CHESS Replacement

6.65In March 2020, CHESS experienced processing delays due to the record trading volumes associated with the financial markets’ reaction to the COVID-19 Pandemic. In October 2020, ASIC and the RBA announced their expectations for the CHESS Replacement Project, including:

The ASX to replace CHESS as soon as this can be safely achieved by the ASX and users of CHESS.

In implementing the replacement, ASX should consider CHESS user feedback from its recent consultation on a revised implementation timeline.

The ASX is expected to demonstrate the readiness of the CHESS Replacement.

The ASX will be required to provide supporting independent assurances to the regulators before migrating to the new CHESS.

ASX Clear and ASX Settlement, as licensed clearing and settlement facilities, are required to ensure that their facilities’ services are provided in a fair and effective way, and that they have sufficient resources (including financial, human, and technological) to operate their facilities.

The ASX is also expected to achieve a significant uplift in intraday trade processing capacity and end-of-day processing performance in the new CHESS.[58]

6.66In the October 2020 media release, ASIC and the RBA indicated their approach to supervising the clearing and settlement and the CHESS Replacement Project:

ASIC and the RBA, with the broader Council of Financial Regulators (CFR) and the Australian Competition and Consumer Commission are also closely supervising ASX’s conduct in the CHESS replacement program of change in accordance with the CFR’s Regulatory Expectations for Conduct in Operating Cash Equities Clearing and Settlement.The Regulatory Expectations seek to ensure that ASX remains responsive to users’ evolving needs and provides access to its monopoly cash equity [clearing and settlement] services on a transparent and non-discriminatory basis with terms and conditions, including pricing, that are fair and reasonable.

The regulators’ supervision and engagement with ASX is focused on ASX’s governance of the change program, its engagement with stakeholders, the functional and technical aspects of the replacement system, and its management of the risks associated with the migration to the new system.[59]

Nov 2021 - ASIC monitoring

6.67ASIC advised that it is closely monitoring the CHESS Replacement Project and using its tools to require ASX to meet regulatory expectations on governance, stakeholder engagement, program delivery, and compliance with its obligations under theCorporations Act 2001.[60] ASIC provided further detail on the specific interactions that occur regularly and increased in intensity over 2021, 2022, and 2023 for the CHESS Replacement Project, including quarterly deep dives on CHESS and meetings at the operating, executive and board levels:

We do regular deep dives, at least on a quarterly basis, around things like CHESS. And as the CHESS replacement has been moving along, we've sought to understand the more technical elements; that could be stakeholder communication. Through these mechanisms we then intervene, so to speak, to advise ASX on the way that we think—or what we're hearing from the market—they should be progressing. Project management, the CHESS replacement project risk framework—there are a whole range of streams that we have around CHESS but we also have streams of work across the ASX more broadly. We have operating-level meetings, we also have executive-level meetings and then we have board-level meetings, and that's probably a specific area where we have increased intensity as well over the last two years, particularly with the increasing delays to the CHESS replacement project. Obviously there have been other incidents and issues arising over that time period—for example, the capacity constraints in March 2020 and the trade outage. So all of this as a cumulative effect has resulted in our intensity increasing and us spending more resources working on these issues.[61]

6.68ASIC used its current powers (including delegated powers) for markets and clearing and settlement facilities to set regulatory expectations, impose additional licence conditions, appoint independent experts, and require audited special reports.[62]

ASIC had previously used the delegated powers to impose licence conditions on ASX Ltd, ASX Clear and ASX Settlement in November 2021. The additional licence conditions were imposed on ASX Clear and ASX Settlement, were intended to mitigate risks associated with the CHESS Replacement Project. These conditions are still in force and will remain so until the go-live date of the replacement system. Ernst & Young, as the appointed independent expert under these additional licence conditions, is expected to report to ASX and ASIC every six months up until 12 months after the CHESS replacement go-live date.[63]

Nov 2022 — Joint ASIC & RBA letter of expectations

6.69Immediately following ASX’s decision to pause the CHESS Replacement Project, ASIC and the RBA published a joint letter of expectations on 17November 2022. The expectations are that:

current CHESS is supported and maintained to ensure its stability, resilience and longevity so that it can continue to service the market reliably;

the ASX uplifts its capabilities before progressing the CHESS Replacement Project; and

the ASX brings the replacement project back on track to deliver safe and reliable clearing and settlement infrastructure.[64]

Dec 2022 - Confidence in the existing CHESS

6.70ASIC noted that part of its role is to maintain confidence in the ASX:

From our perspective, one of the issues for us is confidence, and I think you kept coming to that word. Part of our job is to maintain confidence in ASX. So where we are today I think is a significant issue about confidence in their capability to deliver a replacement system within a reasonable time. Our greatest priority now is: can we have confidence in the existing system's longevity? We'll obviously take some time this afternoon to go over this in more detail, but it's a fundamental priority for us now. In these circumstances where we don't have a viable system to replace CHESS, from my perspective and from the RBA's, our fundamental focus, as the co-regulators, must be on: can we have confidence in the sustainability and resilience of the current CHESS for a long time?[65]

6.71ASIC indicated that it had imposed licence conditions in October 2021 to deal with the ASX Trade outage and to introduce a further layer of assurance through EY as to what was going on with CHESS.[66]

6.72ASIC also used delegated powers to issue notices requiring ASX to provide ASIC with audited special reports. On 14 December 2022, ASIC issued notices to ASX Clear and ASX Settlement under section 823B of the Corporations Act 2001 to produce a special report on the current CHESS which must address the operation, security, business continuity and governance arrangements.[67]

Feb 2023— Special Report on the ASX Portfolio, Program and Project Management Frameworks

6.73On 21 February 2023, ASIC issued further notices to ASX Limited, ASX Clear and ASX Settlement under sections 794B and 823B of the Corporations Act 2001. Those notices required ASX to produce two audited special reports on ASX’s response to the External Review (the External Review Special Report) and ASX’s portfolio, program, and project management frameworks. Both special reports were audited by Ernst & Young (EY). ASIC indicated that:

ASIC considers the External Review Special Report will provide necessary assurance for ASIC and industry that ASX is taking all possible steps to respond to the findings and recommendations outlined in the External Review. More broadly an assessment of ASX’s portfolio, program and project management frameworks against internationally recognised frameworks will demonstrate which components are fit-for-purpose and the measures to be adopted to address identified gaps and deficiencies.[68]

6.74In November 2023, the ASX released the second Special Report and an external EY Audit Report, which made the following conclusions:

1. ASX’s Special Report has addressed or partially addressed all 18Specified Matters from the ASIC Notices.

2. The work undertaken and governance arrangements used by ASX support the outcomes documented in the Special Report; and

3. ASX’s Special Report has addressed 8 of the 10 Additional Matters as outlined in the EY Statement of Work.[69]

6.75The EY Audit Report also made the following recommendations to the ASX:

1. ASX should further develop its Delivery Uplift Roadmap to consider the work effort estimating process and resourcing requirements over time;

2. ASX should perform appropriate outcomes testing to assess the current status of ASX Group-wide adoption (including quality measures); and

3. ASX should…expand the Delivery Uplift Roadmap to remediate such items…The two identified shortcomings impact:

a. Accountability Maps;

b. Change Control & Baseline Management; and

c. Progress Management.[70]

6.76ASIC suggested that these audited special reports and ASIC regulatory actions will help build confidence in the ASX’s ability to deliver the CHESS Replacement Project and any other projects the ASX undertakes. ASIC indicated that it is collectively and holistically considering the special reports and meetings with EY to ensure ASIC understands the findings and will determine if further regulatory action is required.[71]

Mar 2023— The ASIC investigation of ASX’s market disclosures

6.77On 28 March 2023, ASIC notified the ASX of the commencement of an investigation into suspected contraventions of theAustralia Securities and Investments Commission Act 2001(ASIC Act)and theCorporations Act 2001with the CHESS Replacement Project. ASIC described the investigation as follows:

ASIC is investigating whether there were any breaches by ASX companies or their directors or officers in relation to oversight of the program and statements and disclosures made as to the status of the program.[72]

6.78On 29 March 2023, the ASX made a market announcement, confirming that ASIC had commenced the investigation:

ASIC will be investigating whether ASX Limited, ASX Clear Pty Limited, ASX Settlement Pty Limited and/or their directors and officers have breached obligations under sections 180, 674, 674A, 1041H and 1308 of the Corporations Act 2001 and sections 12DA and 12DB of the ASIC Act 2001, during the period 28 October 2020 to 28 March 2022, in relation to oversight of the [CHESS] program, and statements and disclosures made by or on behalf of ASX as to the status of the program.[73]

6.79As the ASIC investigation proceeded in parallel with the committee’s inquiries into the CHESS Replacement Project, the committee indicated its intention to conduct its inquiry comprehensively while being careful to avoid any actions that may compromise the ASIC investigation. The committee chair clarified the committee’s intent by reading the following statement into the Hansard at a public hearing:

I note that today's hearing on the CHESS [Replacement Project] is occurring while there is an ASIC investigation into suspected contraventions of the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001 in relation to the CHESS [Replacement Project]. ASIC has advised me that it would not be an issue for witnesses to appear in public to answer questions on the CHESS, assuming that the boundary of non-discussion of disclosures during the relevant investigatory period, from 28 October 2020 to 28 March 2022, is adhered to. I ask committee members and witnesses to be mindful of the boundary I've just mentioned and that their questions and answers avoid interfering with the ASIC investigation. It is open to the committee or a witness to request that the hearing move to an in camera confidential session. It is a matter for the committee to monitor and make decisions on whether questions or answers may interfere with the investigation..[74]

Aug 2023—Advisory Group

6.80In addition to the above formal regulatory action, in August 2023, the ASX established a Clearing and Settlement Advisory Group (Advisory Group) at ASIC’s request.[75] Further detail on the Advisory Group is available in chapter 7.

Bird and Klein observations

6.81Helen Bird and William Klein, Swinburne Law School, analysed the effectiveness of the regulatory supervision by ASIC and the RBA of the ASX’s work on the CHESS Replacement Project. Ms Bird and Mr Klein concluded that:

There are also lessons for the regulators in the CHESS replacement project failure. Public documents suggest that the Reserve Bank and ASIC appear to have superficially monitored the CHESS replacement project until 2020 and only then did they began to express concerns with the governance of the project. This, despite knowing, since at least since 2018, that there were significant problems with ASX’s technology governance and risk management frameworks. They needed to perform the role of monitoring the ASX’s [clearing and settlement] compliance with greater rigour at an earlier point in time.[76]

Committee view

6.82The committee is very concerned about the problems that arose with the CHESS Replacement Project. As a result of the mismanagement of the project and inadequate supervision at the most senior levels by ASIC, the RBA and Treasury, the problems were not identified and addressed early enough, leading to years of lost progress and productivity. This must not happen again. As summarised in paragraph 5.11, the costs to industry participants in preparing their systems for the new CHESS have been substantial, probably 10s of millions of dollars in aggregate. ASX shareholders have suffered the impacts associated with a $250million write-down by the ASX. Enormous expenditure has occurred on consultant’s reports. Many have lost confidence in the ASX’s ability to deliver large projects. Acting too late has magnified the costs of the regulatory cleanup by ASIC and the RBA.

6.83In its 2022 Half-year results, the ASX stated that:

CHESS replacement remains on track for go-live and the industry test environment is open to software vendors, with customers joining in the coming months…It is meeting its availability and stability targets.

Our new CHESS system will be at the leading edge globally, with a DLT system capable of managing a multitrillion dollar ecosystem with millions of trades and billions of value turning over every day.[77]

6.84The committee draws attention to ASIC’s evidence at a public hearing in February 2022 (see Table 5.1) where Mr Longo stated that:

We're in February 2022; this [go-live] is happening about 14 months or so from now. The technology has actually been built. I think it's very important for the committee to appreciate that, as Commissioner Armour's explained, they're testing as we speak. The next 14 months are going to be spent testing the system and ensuring that it can actually work when they switch it on.[78]

6.85Yet, in August 2022 the ASX announced a delay to the project schedule and that it would commission an independent review of new application software. ASX and Digital Asset identified that more development was required than previously anticipated to meet ASX’s scalability and resilience requirements for the application, contributing to delays to the delivery of the remaining technical components of the application.[79] Then in November 2022, the Accenture report revealed that the application software was only 63 per cent complete when considering both functional and non-functional requirements, and the timeline for completion was uncertain.[80] For the annual RBA assessments, the committee also notes that the RBA marked the ASX down on governance after the problem with the CHESS Replacement Project arose and the project was paused and reset. The ASX, ASIC and the RBA did not appear to have accurate information on the status of the CHESS Replacement Project in February 2022.

6.86The committee notes that in addition to the regular supervisory interactions by the regulators, the timeline in Table 5.1 and the actions described in the section above indicate a large number of substantive regulatory interventions (over 20) by ASIC and the RBA over the past three years. The regulatory interventions included annual RBA assessments, ASIC’s regular monitoring, the joint letters of expectations, actions on existing CHESS, consultants audited special reports, investigation of ASX’s market disclosures, and the establishment of the Advisory Group. Hence, the committee considers that there were likely numerous opportunities for ASIC, the RBA, and Treasury to identify and keep the ASX accountable on strategic technology problems, such as scalability of the distributed ledger technologies used in the CHESS Replacement Project (discussed in chapter 5). The committee notes that in 2017, ASIC had warned prospective financial sector users about issues with scalability of distributed ledger technologies (see chapter 5). For a critical financial services technology platform such as CHESS, a warning to industry users is useful, but not sufficient. The fact that the ASX has been privatised does not remove all responsibility from ASIC, the RBA and Treasury for management of strategic technology risks such as scalability in critical financial services infrastructure. Similarly, the fact that the ASX outsourced software development to Digital Asset does not remove responsibility from the ASX from managing the strategic technology risks such as scalability. The ASX, ASIC, the RBA, and Treasury should have monitored strategic technology risks such as scalability for the ASX CHESS Replacement Project more carefully and been more sceptical of what Digital Asset could provide. The committee considers that more regulatory intervention and reviews by consultants may not be beneficial. Instead, the actions by ASIC, the RBA and Treasury may need to be better targeted, timelier, and more technology aware.

6.87The committee observes that setting policy for and regulating the ASX now goes beyond the corporatefinancial market laws. The ASX is a large technology platform with significant market power. It potentially triggers many of the policy and regulatory challenges associated with other technology platforms, including economies of scale, self-preferencing, vertical integration, and interoperability which are discussed in chapters 2 and 3 of this report and the recently completed Senate Economics References Committee inquiry into theInfluence of international digital platforms.[81] The committee is concerned that the ASX may not have been perceived and approached as a technology platform by ASIC, the RBA, and Treasury.

6.88The committee is concerned that the strategic technology risks, such as scalability may have been perceived as 'being in the weeds' and did not receive enough sceptical attention by:

ASX board members;

ASIC commissioners;

RBA senior officials; and

Treasury senior officials.

6.89The committee notes that the ASX has taken steps to remedy its board's technology skills and processes. The committee encourages ASIC, the RBA, and the Treasury examine whether they have adequate technology skills and processes at the highest levels to regulate and set policy for a technology platform like the ASX. The committee notes that the ASX is just one of several technology platforms operating in financial services and critical financial market infrastructure.

Recommendation 11

6.90The committee recommends that the Australian Securities and Investments Commission, the Reserve Bank of Australia, and Treasury:

enhance their skills, experience, and processes at the most senior levels for monitoring and supervising strategic technology benefits and risks in financial services and market infrastructure; and

through the Council of Financial Regulators:

-conduct an audit of critical financial services technology platforms and infrastructure that the government relies on or has regulatory responsibility for; and

-create an ongoing regular status report on critical financial services technology platforms and infrastructure to ensure early alerts and responses to strategic technology risks and other problems.

Footnotes

[1]ASIC, answers to question on notice, 008, 5 December 2022 (received 16 January 2023). Sometimes the term ‘co-regulatory’ is used synonymously with the term ‘co-supervisory’. For example, the ASX noted that the term ‘co-regulatory model’ may refer to direct government regulation of an entity by at least two regulators that act in a complementary manner, but that usage of the term is distinct from the typical meaning of ‘coregulation’, which refers to instances where industry plays a role in developing and administering its own arrangements. Hence, for this report, the term ‘co-supervisory’ will be used to describe the shared regulatory responsibilities between ASIC, the RBA, and the ACCC; ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[2]ASIC, answers to question on notice, 008, 5 December 2022 (received 16 January 2023).

[3]ASIC, answers to question on notice, 008, 5 December 2022 (received 16 January 2023); ASX, answer to question on notice, 001, 5 December 2022 (received 6 February 2023).

[4]ASIC, answers to question on notice, 008, 5 December 2022 (received 16 January 2023); ASX, answer to question on notice, 001, 5 December 2022 (received 6 February 2023).

[5]ASX, answers to question on notice, 001, 5 December 2022 (received 6 February 2023).

[6]ASX, answers to question on notice, 001, 5 December 2022 (received 6 February 2023).

[7]Treasury Laws Amendment (2023 Measures No. 3) Bill 2023, Explanatory Memorandum, Chapter 3, p. 2.

[8]ASIC, Submission 7, pp. 17–18.

[9]CFR, Financial Market Infrastructure Regulatory Reforms, A Response to Consultation by the Council of Financial Regulators, July 2020, pp. 9–11, 18–19.

[10]Treasury, answers to question on notice, 005, 27 June 2023 (received 28 July 2023).

[11]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[12]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[13]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[14]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[15]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[16]ASIC, answer to question on notice, 008, 5 December 2022 (received 16 January 2023).

[17]ASIC, answer to question on notice, 008, 5 December 2022 (received 16 January 2023).

[18]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[19]Cboe, answers to question on notice, 007, 27 June 2023 (received 28 July 2023).

[20]Cboe, answers to question on notice, 008, 27 June 2023 (received 28 July 2023).

[21]The Stockbrokers and Investment Advisers Association is the professional body for the stockbroking and investment advice industry. Members are market participants and advisory firms that provide securities and investment advice, execution services and equity capital-raising for Australian investors, both retail and wholesale, and for businesses; Stockbrokers and Investment Advisers Association, answers to questions on notice, 23 February 2023 (received 23 March 2023).

[22]Stockbrokers and Investment Advisers Association, answers to questions on notice, 23 February 2023 (received 23 March 2023).

[23]ASIC and the RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, p. 7.

[24]Mr Joseph Longo, Chairman, ASIC, Committee Hansard, 5 December 2022, p. 28.

[25]Ms Helen Lofthouse, Managing Director and Chief Executive Officer, Committee Hansard, 5December 2022, p. 2.

[26]Mr Joseph Longo, Chairman, ASIC, Committee Hansard, 5 December 2022, p. 28.

[27]Mr Nathan Bourne, Senior Executive Leader, Market Infrastructure, ASIC, Committee Hansard, 27June 2023, p. 43.

[28]Mr Joe Longo, Chair, Market Infrastructure, ASIC, Committee Hansard, 27 June 2023, pp. 20, 22, 23, 44.

[29]Mr Nathan Bourne, Senior Executive Leader, Market Infrastructure, ASIC, Committee Hansard, 27June 2023, pp. 22, 44, 45.

[30]The Committee on Payments and Market Infrastructures is an international standard setter that promotes, monitors, and makes recommendations about the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy. The Committee on Payments and Market Infrastructures also serves as a forum for central bank cooperation in related oversight, policy and operational matters, including the provision of central bank services; Bank of International Settlements, CPMI – Overview, https://www.bis.org/cpmi/about/overview.htm (accessed 13 November 2023).

[31]The International Organization of Securities Commissions is the international body that brings together the world's securities regulators and is recognized as the global standard setter for the securities sector. The International Organization of Securities Commissions develops, implements and promotes adherence to internationally recognized standards for securities regulation; International Organization of Securities Commissions, About IOSCO, https://www.iosco.org/about/?subsection=about_iosco (accessed 13 November 2023).

[32]ASX, answers to questions on notice, 5 December 2022 (received 6 February 2023).

[33]Bank of International Settlements, Principles for Financial Market Infrastructures, https://www.bis.org/cpmi/info_pfmi.htm (accessed 13 November 2023).

[34]Financial Stability Board, Principles for Financial Market Infrastructures, https://www.fsb.org/2012/04/cos_120418/ (accessed 20 December 2023).

[35]ASIC and the RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, p. 7.

[36]ASIC, Regulatory Guide 211: Clearing and settlement facilities: Australian and overseas operators: Appendix 2, December 2012, pp. 70–73.

[37]ASIC and the RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, p. 7.

[38]ASIC and the RBA, 2014 Assessment of ASX Clearing and Settlement Facilities CPSS-IOSCO Principles for Financial Market Infrastructures, September 2014, pp. 2–3, 14–27.

[39]ASIC and the RBA, 2014 Assessment of ASX Clearing and Settlement Facilities CPSS-IOSCO Principles for Financial Market Infrastructures, September 2014, p. 1.

[40]ASIC, Licensed market and clearing and settlement facility assessment reports, https://asic.gov.au/regulatory-resources/markets/market-structure/licensed-market-and-clearing-and-settlement-facility-assessment-reports/ (accessed 7 December 2023); See also ASIC and RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, p. 29.

[41]ASIC, Submission 7, pp. 3, 10, 16.

[42]ASIC and RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, pp. 1, 36.

[43]ASIC and RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, p. 36.

[44]ASIC and RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, p. 36.

[45]ASIC and RBA, Self-assessment of the Australian Securities and Investments Commission and Reserve Bank of Australia – Clearing and Settlement Facilities, July 2018, pp. 1, 5.

[46]ASX, Principles for Financial Market Infrastructures (PFMI) Disclosure Framework, December 2021, p.6.

[47]ASX, Principles for Financial Market Infrastructures (PFMI) Disclosure Framework, December 2021, p.74.

[48]ASX, Principles for Financial Market Infrastructures (PFMI) Disclosure Framework, December 2023, p.6.

[49]RBA, Assessment of ASX Clearing and Settlement Facilities, October 2023, p. 1.

[50]RBA, Assessment of ASX Clearing and Settlement Facilities, October 2023, p. 1.

[51]RBA, Assessment of ASX Clearing and Settlement Facilities, October 2023, p. 3.

[52]RBA, Assessment of ASX Clearing and Settlement Facilities, October 2023, p. 6.

[53]ASIC, Review of the ASX equity market outage on 19 September 2016, Report 509, December 2016, pp.4,8.

[54]ASIC, Review of the ASX equity market outage on 19 September 2016, Report 509, December 2016, pp. 5–7.

[55]ASIC, Review of the ASX equity market outage on 19 September 2016, Report 509, December 2016, p. 7.

[56]ASIC, ASIC reports on review of ASX Group’s technology governance and operational risk management standards, 18-264MR, 12 September 2018.

[57]ASIC, Review of ASX Group’s technology governance and operational risk management standards, Report592, September 2018, pp. 5–6.

[58]ASIC and RBA, ASIC and RBA announce expectations for CHESS replacement, Media release 20-229MR, 1 October 2020.

[59]ASIC and RBA, ASIC and RBA announce expectations for CHESS replacement, Media release 20-229MR, 1 October 2020.

[60]ASIC, answers to questions on notice, 037, 27 October 2023 (received 20 November 2023).

[61]Mr Nathan Bourne, Senior Executive Leader, Market Infrastructure, ASIC, Committee Hansard, 23February 2023, p. 9.

[62]ASIC, answers to questions on notice, 27 October 2023 (received 20 November 2023).

[63]ASIC, Submission 7, p. 9.

[64]ASIC, Submission 7, p. 9.

[65]Mr Joseph Longo, Chairman, ASIC, Committee Hansard, 5 December 2022, p. 37.

[66]Mr Joseph Longo, Chairman, ASIC, Committee Hansard, 5 December 2022, p. 37.

[67]ASIC, Submission 7, p. 10.

[68]ASIC, Submission 7, p. 10.

[69]ASX, Program Management Special Report, Special Report on Project, Program and Portfolio Management, September 2023; EY, Review of Special Report on Portfolio, Program and Project Management (PPPM), 13 October 2023, p. 5; ASIC, ASIC acknowledge ASX’s release of the Portfolio, Program and Project Management Special Report and Audit Report, Media release, 27 November 2023.

[70]EY, Review of Special Report on Portfolio, Program and Project Management (PPPM), 13October2023, p. 6.

[71]ASIC, answers to questions on notice, 037, 27 October 2023 (received 20 November 2023).

[72]Mr Joseph Longo, Chair, ASIC, Committee Hansard, 27 June 2023, p. 18.

[73]ASX, CHESS Replacement Project – ASIC Investigation, Market Announcement, 29 March 2023.

[74]Senator Deborah O’Neill, Committee Chair, Committee Hansard, 8 June 2023, p. 1.

[75]ASIC, answers to questions on notice, 27 October 2023 (received 20 November 2023).

[76]Helen Bird and William Klein, Submission 12 (Revised), p. 69.

[77]ASX Limited, 2022 Half-year results presentations and speaking notes, p. 17.

[78]Mr Joseph Longo, Chair, Australian Securities and Investments Commission, Committee Hansard, 11 February 2022, pp. 3, 6, 8–9.

[79]ASX, CHESS replacement project – Delay to project schedule; ASX to commission an independent review of new application software, 3 August 2023).

[80]ASX, ASX will reassess all aspects of the CHESS replacement project and derecognise capitalised software of $245–255 million pre-tax in 1H23, 17 November 2022.

[81]Senate Economics References Committee, Inquiry into the influence of digital platforms, November 2023.