Written by Byron Kaye
The Australian corporate regulator has taken legal action against the country’s stock market operator, alleging that it misled the public regarding the progress of a problematic software upgrade. The Australian Securities and Investments Commission (ASIC) has accused ASX of undermining financial market integrity and investor confidence.
ASIC claims that ASX violated the law when it indicated in a February 2022 trading update that it was on track to transition to a new blockchain-based clearing and settlement platform the following year. The lawsuit seeks unspecified fines and highlights a significant deterioration in the relationship between ASX and its primary regulator.
Joe Longo, chair of ASIC, has criticized the software upgrade project as an act of hubris and a “collective failure” by ASX’s board and senior executives. The lawsuit reveals that ASX’s software developer had warned the company for seven months that the project was falling behind schedule. By late 2021, ASX itself had classified the project status as “red,” indicating significant delivery risks.
The misleading conduct by ASX posed a risk to the integrity of Australian financial markets and investor confidence, according to the lawsuit. The lawsuit also points out that ASX’s guidance on the software upgrade contradicted the corporate governance principles it promotes for itself and other listed entities.
ASX CEO Helen Lofthouse has acknowledged the seriousness of the allegations and stated that the company is reviewing ASIC’s claims. Following the news, ASX’s shares dropped by as much as 4%.
The long-delayed overhaul of ASX’s settlement and clearing platform, initially proposed in 2016, is now expected to be completed by 2029 under a new supplier, Tata Consultancy Services from India. The lawsuit reveals that ASX’s initial software vendor, Digital Asset (DA), had warned of potential delays as early as July 2021.
Despite receiving a revised timetable from DA in December 2021, ASX rejected it in favor of a published plan. Two days before the February 2022 trading update, ASX and DA discussed the possibility of a “descoped” version of the software for testing, but no agreement was reached. The trading update falsely claimed that the project was on schedule, while ASX’s CEO announced retirement.
ASIC itself faced criticism in a Senate inquiry for failing to fully anticipate the issues with the ASX upgrade. ASX is set to announce its annual profit on Friday.
($1 = 1.5103 Australian dollars)