3 months ago
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The Australian Securities and Investments Commission (ASIC) has filed a lawsuit against the country’s leading stock exchange, the ASX, alleging it made “misleading and deceptive” statements regarding its failed blockchain project in 2022.
The legal dispute centers around ASX‘s ambitious plan to replace its aging Clearing House Electronic Subregister System (CHESS) with a blockchain-based system – a move initially hailed as a groundbreaking step towards modernizing Australia’s financial market infrastructure.
A Promising Start with a Disappointing End
The project, which was announced in 2017, promised to enhance efficiency, transparency, and security for market participants. However, after years of delays, technical challenges, and escalating costs, ASX officially abandoned the blockchain initiative in November 2022.
The decision to cancel the project came after an independent review that uncovered significant issues with the technology’s design and implementation, ultimately deeming it unviable for the exchange’s needs. Nearly two years after the project’s cancellation, ASIC has brought a lawsuit against the ASX.
The financial regulator alleges that, during the development of the blockchain system, ASX made public statements that were misleading and deceptive, particularly regarding the project’s progress and the benefits it would deliver to the market.
The Cost of Misleading Statements
ASIC claims that ASX overstated the capabilities and readiness of the blockchain technology, misleading stakeholders – including investors and market participants – about the true state of the project. According to the financial regulator, the company’s assurances that the platform was on track to go live in April 2023 and was “progressing well” were false and misleading.
In a statement released on August 14, the market watchdog asserted that the project was not “progressing well”, contrary to ASX’s public announcements. “We allege that the true state of affairs as of February 10, 2022, was that the project was not ‘progressing well,’ contrary to the ASX’s announcement,” the regulator said.
Additionally, ASIC claims that the discontinuation of the blockchain project two years ago caused significant costs to market participants who had relied on ASX’s assurances regarding the project’s progress and scheduled go-live date.
Market Integrity at Stake
As a result of the poor communication, ASIC has reiterated the importance of transparency and accuracy in public communications by market operators, noting that misleading statements can undermine market integrity and investor confidence.
“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide-ranging consequences across the market,” said ASIC Chair Joe Longo.
The Australian regulator is yet to determine the penalty it will seek from ASX for what it describes as a failure to adequately disclose the challenges and risks associated with the blockchain project. However, it’s worth noting that the stock exchange previously paid a penalty of approximately $1,050,000 on March 7, following an ASIC investigation into its compliance with market integrity rules.
