ASIC takes legal action against ASX over misleading CHESS replacement claims

The Australian Securities and Investments Commission (ASIC) has commenced legal action in the Federal Court against ASX Limited (ASX: ASX), accusing it of making misleading statements in an announcement on 10 February 2022.

The national corporate regulator alleges ASX’s statements that its Clearing House Electronic Subregister System (CHESS) replacement project remained “on track for go-live” in April 2023 and was “progressing well” were misleading.

“ASX’s statements go to the heart of trust in the integrity of our markets,” ASIC chair Joe Longo said in announcing the legal action.

‘Misleading and deceptive’

ASIC alleges those representations were misleading and deceptive because, at the time of the announcement, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones.

“We believe this was a collective failure by the ASX board and senior executives at the time,” Mr Longo said.

“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments.’

“We expect the ASX to be a place to list and invest with confidence—when it falls short, it has wide-ranging consequences across the market.”

Subsequent delay

On 28 March 2022, approximately six weeks after making the initial statement, ASX announced that there was a strong likelihood of further delay.

The ASX subsequently engaged international consulting firm Accenture to undertake a review of the project, which identified significant challenges with the solution design and its ability to meet ASX’s requirements.

Following the release of the Accenture report, ASX decided to pause the project and wrote down costs of $250 million.

Critical infrastructure

Mr Longo described the CHESS replacement as a technology project of fundamental significance, replacing critical national infrastructure crucial to the operation of the Australian economy.

“Its critical importance was all the more reason ASX needed to ensure it told the Australian public the truth about how the project was tracking and whether it would be completed on time,” he said.

“The delay and subsequent pause of the project in November 2022 caused significant cost to ASX and market participants who relied on assurances as to the progress of the project and scheduled go-live date.”

Penalty to be decided

ASIC says it is yet to determine the penalty it will seek.

ASX managing director and chief executive officer Helen Lofthouse has confirmed that ASIC is seeking declarations, pecuniary penalties, an adverse publicity order and costs against ASX.

“We recognise the significance and serious nature of these proceedings,” Ms Lofthouse said.

“We play a critical role at the centre of Australia’s financial markets and continue to focus on supporting and delivering for customers.”

“We are committed to taking ASX forward and have made strong progress as an organisation over the past two years.”

On 7 March 2024, ASIC announced ASX had paid a penalty of $1,050,000 following an ASIC investigation into its compliance with the market integrity rules.