The Australian Stock Exchange (ASX), based in Sydney, is one of the top 20 largest stock exchange in the world. For reference, the NYSE and NASDAQ stock exchanges are the top two.
Stock exchanges basically allow stock brokers/dealers to execute, settle, and clear stock trades. Clearing and settlement is also called post-trade.
ASX will act as a CENTRAL COUNTER PARTY to be a trusted middleman between the stock seller and the stock buyer.
Stock trade EXECUTION, that is to buy or sell, happens in real time. So that the market price of the stock is captured. Let's do the deal now and figure out details later.
But stock CLEARING and SETTLEMENT happens later - in non real time. Also known as batch processing. T+2 phenomenon.
Stock trade clearing is the step to ensure match buy order from the investor and sell order from the issuer, and that the seller does own the stock, and that the buy does have the funds to buy the stock.
Stock trade settlement is the step to transfer the stock from the seller to the buyer and to transfer funds from the buyer to the seller.
The actual stock certificate is held in a CUSTODIAN (bank). It does not need to be handed physically from the seller to the buyer.
ASX's system to clear and settle stocks trades is called Clearing House Electronic Subregister System (CHESS).
It was put into operation in the 1990. Its main goal was to DEMATERIALIZE/DIGITIZE stock trades.
Stock trades have typically been physical paper based.
Dematerialize turns physical paper documents into digital form.
CHESS has worked well, but in need of modernization. Speeding up post trade (clearing and settlement) from T+5 down to T+2.
But CHESS is now 25 years old. Time to update or replace it. The system to replace CHESS will be called CHESS+.
CHESS+ will use blockchain/DLT from VMware, and the Daml smart contract programming language from Digital Asset.
VMware Blockchain will provide the blockchain DLT platform that will serve as 1) storage - single source of truth 2) compute - to execute smart contract programs. The smart contract programming lanauge
What is driving the modernization? Pain point (T+2, unify systems into single record). Vision driven (jump on DLT). Want to differentiate (be the 1st to DLT).
A stock exchange will have multiple participants, on both sides of a trade. The seller can be an ISSUER of a stock (as part of an IPO). The buyer can be an INVESTOR.
So for CHESS+ to be successful, its participants (investors, issuers, etc) must be able to connect and interact successfully with it.
As of December 2021, CHESS+ is anticipated to go live April 2023. Before going live, it has to be tested. Testing will be performed in two phases. In the first phase (happening now), called ITE1, the ISV software providers be testing CHESS+. In the second phase, called ITE2, user participants will join in its testing.
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