Out-of-cycle assessment of ASX Clear Pty Ltd and ASX Settlement Pty Ltd: Operational Risk Standard – March 2025 1. Key Developments

December 2024 Incident

Due to an ASX technology issue in CHESS, batch settlement of equity market transactions failed on Friday, 20 December 2024. The settlement of the failed batch transactions was rescheduled to Monday, 23 December when settlement occurred successfully. This is the first time that a full settlement batch of ASX equity transactions needed to be re-scheduled to a later day.

The overarching cause was the CHESS memory allocation being insufficient for the number of settlement participants on 20 December 2024. This was due to incorrect logic in the CHESS code for the calculation of the number of settlement participants. The incorrect logic has existed since 2014. One week prior to the incident, a settlement participant resigned. This caused the number of settlement participants to fall below a specific threshold at which point the memory allocation was substantially reduced. On 20 December, the number of settlement participants with settlement obligations for that day was more than could be accommodated by the reduced memory allocation. This caused a step in the settlement process to fail.

ASX was unable to resolve the issue on 20 December 2024 and did not have planned and fully tested alternative settlement arrangements (contingency arrangements) for this scenario. The only option was to defer and reschedule settlement of the batch to the next business day. Technical functionality was available to do this. However, there were no established plans which had been tested with participants for the use of this process across the full settlement batch. Communication with stakeholders, and the regulators, was not proactive or timely and added to the uncertainty of whether settlement would be completed by the end of the day or rescheduled.

ASX teams worked to resolve the issue over the weekend of 21–22 December: the root cause was identified on the morning of Sunday, 22 December and a fix was deployed on the Sunday afternoon.

CHESS Replacement

In November 2022, ASX announced it was pausing the CHESS Replacement Program to reassess all its aspects. ASX subsequently announced the solution design and selected vendors for the new CHESS Replacement in November 2023. CHESS Replacement will occur in two phases. The first release, expected to go live in the first half of 2026, will provide a new messaging interface for Approved Market Operators. It will also replace clearing functionality, removing the current capacity constraints. The second release (the settlement and sub-register replacement) is estimated for 2029.

Until CHESS Replacement is completed it is critical that current CHESS is operated and supported in a manner that promotes safety and stability in the Australian financial system. This has been highlighted in the RBA’s 2023 and 2024 Assessments of the ASX and in letters of expectations to ASX from the RBA and the Australian Securities and Investments Commission (ASIC).

In a public letter dated 15 December 2022³, ASX gave the RBA an undertaking to “maintain the resources and capabilities to support the ongoing operation, maintenance and investment in current CHESS to ensure it will continue to service Australia’s cash equities markets reliably until CHESS replacement goes live.”

Consistent with a requirement from ASIC, ASX published a Special Report on the CHESS system in 2023. This Report was the subject of independent assurance. The Special Report included a CHESS Roadmap that details the initiatives related to the support and maintenance of the CHESS system. The CHESS Roadmap has subsequently been updated in accordance with a recommendation made in the RBA’s 2023 ASX Assessment. The RBA expects ASX to review the initiatives on the CHESS Roadmap, in light of the incident, to assess whether they remain appropriate to comprehensively prevent, detect and mitigate risks in the CHESS system.

Endnotes

See ASX Media Release, 15 December 2022: ‘ASX acknowledges ASIC and RBA requirements related to CHESS 3