ASX Faces Legal Action Over Failed Blockchain CHESS Project

ASX shares fell sharply on Wednesday after the Australian Securities Exchange operator disclosed that a shareholder is seeking court approval to launch legal proceedings against former directors and officers over the exchange’s abandoned blockchain-based CHESS replacement project.

Shares of ASX dropped as much as 2.5% to A$55.68, marking the company’s largest intraday decline since July 3. The market reaction followed the disclosure involving shareholder Rosherville, which alleges that certain former ASX officers and directors breached their duties in connection with the troubled Clearing House Electronic Subregister System (CHESS) project.

Rosherville intends to seek leave from the court to bring a statutory derivative action on behalf of ASX. Under Australia’s Corporations Act 2001, this type of legal action allows an eligible shareholder or officer to pursue proceedings in a company’s name when the company is unlikely to take action itself. Any successful proceedings would generally be conducted for the benefit of the company.

ASX stressed that the allegations are directed at certain former officers and directors and that there are no allegations against ASX itself. The exchange said it will provide further updates if there are significant developments in the case.

The legal dispute stems from ASX’s long-running CHESS replacement program, which was designed to modernize Australia’s securities clearing and settlement infrastructure. The project relied heavily on blockchain technology but encountered significant delays and technical problems.

In November 2022, ASX paused the CHESS replacement after an independent review identified major issues with the project’s design and implementation. The exchange subsequently abandoned the original blockchain-based approach and began developing a new plan to replace the existing CHESS system.

The proposed shareholder action adds another layer of scrutiny to one of Australia’s most closely watched financial technology projects. The case could also renew investor focus on governance, project management and accountability surrounding the failed CHESS blockchain initiative.