(Bloomberg) -- Australia’s securities regulator is suing ASX Ltd. for misleading statements relating to a years-long upgrade to its clearing and settlement system, raising the prospect of penalties that could add to an already costly overhaul of the exchange.
The Australian Securities and Investments Commission alleges ASX statements made in February 2022 about its Clearing House Electronic Subregister System replacement project, known as Chess, misled investors, according to a statement Wednesday. The exchange said it remained “on-track for go-live” in April 2023 and was “progressing well,” the statement said.
“We allege that the true state of affairs as at 10 February 2022 was that the project was not ‘progressing well,’ contrary to ASX’s announcement,” ASIC Chair Joe Longo said in the statement.
ASX Chief Executive Officer Helen Lofthouse said the firm recognizes “the significance and serious nature of these proceedings,” according to a separate statement. “We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations.”
ASX, the country’s main exchange, determined as far back as 2016 that it would replace its Chess system. That process hit a number of snags in subsequent years and attracted scrutiny for delays to its progress.
Originally tipped to be an overhaul backed by blockchain technology, the project later changed shape and the ASX said in November 2022 that it was taking a writedown of about A$250 million. Accenture was commissioned to do a review and found issues including lack of clarity on timelines.
ASIC, which filed the suit in the Federal Court on Tuesday, said it has yet to determine the penalty it will seek for ASX’s alleged contraventions. It marks the first litigation against the exchange for the upgrade of the platform.
Back in 2016, the project got backing from Digital Asset Holdings, the blockchain startup run by former JPMorgan Chase & Co. banker Blythe Masters. Those plans were later ditched and the exchange was then required by the regulator to keep it updated on progress. ASX Chair Damian Roche apologized in 2022 for the disruption in relation to the project’s delays.
Lofthouse took over from former CEO Dominic Stevens in August 2022. ASX shares slipped 3.7%, the most in two months, as of 12:18 p.m. in Sydney.
Penalty Potential
The case may become an expensive exercise for the exchange, said Sharnie Wong, senior industry analyst at Bloomberg Intelligence. ASX may need to spend more on legal and risk management, as well as on potential penalties, wrote Wong, who had already noted the firm’s expected expenses on the system redesign to weigh on profit.
--With assistance from Matthew Burgess.
(Adds commentary from Bloomberg Intelligence analyst in tenth paragraph)
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