ASIC has launched an inquiry into the ASX. Photo: File.
The Australian Securities and Investments Commission (ASIC) has launched an investigation into the nation’s stock exchange over what it claims are serious failures and governance issues.
ASIC announced the inquiry into the Australian Securities Exchange (ASX) group on Monday (16 June), saying there were “ongoing concerns” over its ability to maintain stable, secure and resilient critical market infrastructure.
ASIC said those concerns were shared by the Reserve Bank of Australia (RBA).
The RBA and ASIC are co-regulators of licensed Clearing and Settlement (CS) facilities and have separate, but complementary, responsibilities for the licensing and supervision of CS facilities licensees.
The inquiry will be led by an expert panel that will make recommendations to address any identified shortcomings or deficiencies.
ASIC will publish a report of the outcome of the inquiry, which will inform the next steps it may take.
ASIC chair Joe Longo noted that ASX operates Australia’s critical markets infrastructure.
“Investors and market participants deserve to have absolute confidence that ASX is operating soundly, securely and effectively,” Mr Longo said.
“ASIC’s decision to initiate an inquiry follows repeated and serious failures at ASX.
“ASX is ubiquitous, you simply cannot buy and settle on the Australian public equities and futures markets without relying on ASX and its systems.
“The inquiry provides an opportunity for ASX to bolster market trust.
“The chairs of the ASX entities, members of the board, and CEO and CRO have assured me ASX will fully cooperate with the inquiry and ASIC welcomes this cooperation.”
ASIC will discontinue its investigation of the 20 December, 2024, CHESS Batch Settlement failure. Consideration of this incident will form part of the broader inquiry.
CHESS Batch Settlement is the process used by the ASX to settle trades in the Australian equity market.
In March this year, ASIC and the RBA sent a joint letter to the ASX expressing increasing concern over the management of operational risk, following the CHESS Batch Settlement failure incident.
Three of the five incidents referenced by ASIC when announcing the inquiry involve the CHESS Settlement system and its replacement project.
ASX chair David Clarke confirmed the group’s intention to cooperate with the inquiry.
“We acknowledge the seriousness of this action, and ASIC’s inquiry will have our full cooperation,” he said.
“We have been working hard on a transformation strategy with several of the initiatives designed to strengthen culture and capabilities, operational risk management, business resilience and technology resilience, but we acknowledge there have been incidents that have damaged trust in ASX.
“We welcome the opportunity for independent parties to review the work underway and advise on what more we can do.”
ASIC will conduct the inquiry using existing powers under Section 794C and 823C of the Corporations Act 2001 to assess how well ASX is complying with its obligations as a market licensee and a Clearing and Settlement facility licensee.
The inquiry may also use the additional powers received through the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024.
The composition of the expert panel will be announced in the coming weeks and it will be supported by an ASIC Secretariat with assistance from the RBA, Australian Prudential Regulation Authority as well as the Australian Competition and Consumer Commission.
ASX managing director and CEO Helen Lofthouse said: “As the operator of critical market infrastructure, we recognise the significance of this action by ASIC and we are committed to supporting the inquiry.
“This is a wide-ranging inquiry and it will provide an independent and transparent view of the work we have done, and the work we still have to do.
“It will be critical to ensuring our stakeholders can have trust and confidence in ASX.
“Each person at ASX understands the key role we play in the financial system and we will provide all the support required to ensure this inquiry is effective.”
ASIC has stressed that while its inquiry is underway, it is critical that ASX continues to prioritise the safe and efficient operation of its infrastructure, including progress towards Release 1 of the CHESS replacement project in mid-2026.
