An investigation has been launched by the Australian regulator into the Australian Securities Exchange (ASX) group, focusing on governance, capability, and risk management frameworks. This move follows concerns over the exchange’s ability to maintain stable and secure critical market infrastructure. The announcement of the inquiry caused a significant drop in the ASX stock price.
The Australian Securities and Investments Commission (ASIC) has teamed up with the Reserve Bank of Australia to delve into the operations of the ASX. While the specific incident prompting the investigation was not disclosed, ASIC had previously been reviewing the stock exchange for settlement technology malfunctions. This earlier review will now be integrated into the broader inquiry.
ASX has faced challenges, including a major trading halt in 2020 that triggered a probe by ASIC. Joe Longo, ASIC’s Chair, emphasized that the inquiry was initiated due to repeated and serious failures at ASX and presents an opportunity for the exchange to rebuild market trust.
In a bid to modernize its clearing and settlement software, ASX had embarked on a blockchain-based transformation in 2017. However, the project encountered delays and was eventually abandoned in 2022. The exchange later engaged Tata Consultancy Services to commence a phased upgrade of its platform, with the first phase expected to roll out in 2026 at an estimated cost of AU$105-125 million.
David Clarke, ASX’s Chairman, stressed the exchange’s commitment to advancing its technology despite the ongoing inquiry. ASX acknowledged the regulator’s decision to appoint an expert panel to scrutinize its frameworks and practices, citing efforts to strengthen culture, operational risk management, and technology resilience.
While ASX has been working on a transformation strategy to enhance its capabilities and resilience, incidents have occurred that eroded trust in the exchange. The inquiry is seen as an opportunity for ASX to address these shortcomings and bolster confidence in the market. The exchange remains focused on its technology upgrade initiatives to ensure operational robustness and trustworthiness.
The financial markets are closely monitoring the developments at ASX, as the outcome of the investigation could have broader implications for the Australian financial landscape. The regulatory scrutiny underscores the importance of robust governance and risk management practices in maintaining the integrity of stock exchanges and financial markets.
Market observers are keen to see how ASX responds to the inquiry findings and whether the exchange can successfully address the identified deficiencies. The ASX’s ability to navigate these challenges and implement effective remedial actions will be critical in restoring market confidence and ensuring the stability of Australia’s primary stock exchange.
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