ASX to use blockchain technology

The ASX is set to adopt blockchain-based technology for its clearing and settlement process, after announcing today that it would replace the current Clearing House Electronic Subregister System.

The exchange said it would move to distributed ledger technology, which has been developed by New York startup Digital Asset.

A distributed ledger is a database that is shared publicly and allows transactions to have public witnesses, aimed at protecting users from a cyber-attack.

Blockchains, which are used to manage bitcoin transactions, use distributed ledger technology.

ASX invested in Digital in 2016 and said it was taking the chance to replace CHESS with a post-trade platform using contemporary technology.

Digital has built enterprise-grade DLT software for core equity clearing and settlement functions, which has been tested by both companies during the past two years.

ASX managing director Dominic Stevens said the testing included two independent third party security reviews of Digital’s technology.

“ASX has been carefully examining distributed ledger technology for almost two-and-a-half years, including the past two years with Digital Asset, in order to understand its potential application,” he said

“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.

“While we have a lot more work still to do, today’s announcement is a major milestone on that journey.”

Digital chief executive Blythe Masters said the testing process proved the technology could be used in major financial markets.

“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,” he said

“Together, Digital and our client ASX have shown that the technology not only works, but can meet the requirements of mission critical financial infrastructure.”

ASX said it would release more details in March