The Australian Securities Exchange (ASX) has become the first major bourse to announce the adoption of blockchain technology—the same kind of tech that underpins the bitcoin cryptocurrency—to record shareholdings and manage the clearing and settlement of equity transactions.
Blockchain or distributed ledger technology (DLT) uses a shared ledger to permanently record transactions in a way that is practically impossible to tamper with. The vendor of this particular platform is Digital Asset, which has the backing of the likes of Deutsche Börse Group, JPMorgan Chase, Accenture, IBM, Goldman Sachs, and of course ASX.
ASX said Thursday that its soon-to-be-scrapped Clearing House Electronic Subregister System (CHESS) was “world-leading” when it was introduced in the 1990s, but testing of the new DLT software over the last two years has shown it to be better.
“ASX has been carefully examining distributed ledger technology for almost two-and-a-half years, including the last two years with Digital Asset, in order to understand its potential application,” ASX CEO Dominic Stevens said in a statement. “Having completed this work, we believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets.”
Unlike bitcoin’s public blockchain, which relies on copies of the shared ledger that are stored on individual computers globally, ASX’s system will “be operated by ASX on a secure private network where participants are known, ‘permissioned’ to have access, and must comply with ongoing and enforceable obligations,” the exchange said.
ASX will now consult with its stakeholders on the system’s functionality when it goes live. It said it will reveal more, including the potential timing of the switch from CHESS, at the end of March.
“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,” Digital Asset CEO Blythe Masters said.
Many banks are also participating in a UBS-led project to develop a blockchain-based “utility settlement coin” that could speed up inter-bank settlements.
Nasdaq has also developed blockchain technology that it has provided to the New York Interactive Advertising Exchange.