The Australian stock exchange is moving to blockchain technology, which is a distributed ledger technology that enables the recording of all transactions on a digital ledger. The company Digital Asset Holdings has developed a new clearing and settling system for trades. The move marks a milestone in the global race to adopt blockchain. The company’s chief executive is a former JP Morgan banker.
Block and Afterpay to start trading on the Australian Securities Exchange
Afterpay and Block are now trading on the Australian Securities Exchange (ASX). The move comes amid the latest wave of disruption in the “buy now, pay later” market, with Apple, Amazon, and other tech companies pushing the boundaries of this industry. However, some analysts are skeptical about the new listing, and some question whether the deal will help these companies grow.
While Block shares have declined by more than half in the past six months, investors should not dismiss the company just yet. The stock has been swept along by the broader market rotation away from growth stocks, and toward value stocks and cyclicals. As such, investors have not had the time to focus on the company’s fundamentals.
Block’s acquisition of Afterpay is a big deal for both companies. The deal represents the largest sum of money Block has ever paid to acquire an Australian firm. However, it is not the most expensive deal on the ASX – the BHP-Woodside megadeal was worth $31 billion. The combined company will be listed on the ASX on January 20. This merger is expected to help Afterpay expand its market in the United States.
Block and Afterpay are both well-positioned for growth. The companies are complementary and do not share a lot of overlap. Once the deal closes, Block and Afterpay will have significant international expansion opportunities. Block has over 85% of its GMV in the US as of its investor presentation in August 2021, and Afterpay has more than 50% of its GMV in non-US markets.
Block and Afterpay are also expected to integrate Afterpay’s buy now, pay later products with its own suite of payment technology products. This move could help the companies leverage the 10x partnership. Afterpay shareholders will be able to access the broader market for payment products.
Block and Afterpay have both risen in value in the past two years. Both companies have a combined market valuation of more than $80 billion. Block shares are down about 40% since the announcement, but the news has been met with positive commentary in the Australian Financial Review.
ASX to replace CHESS with blockchain-based system
The Australian Securities Exchange is replacing CHESS with a distributed ledger technology platform. The new system will incorporate Daml smart contract technology and provide better access to information and control over securities processing. The new platform has been designed with distributed ledger technology and smart contract technology to support the stable and orderly operation of high-volume markets.
The Australian Securities Exchange (ASX) had originally hoped to replace the CHESS clearing system with a blockchain-based system in April 2024, but has delayed the project multiple times. The exchange has now hired Accenture to conduct a review of the project. The blockchain-based system was originally expected to launch in 2022, but ASX CEO Dominic Stevens said the company needed to triple its capacity to handle the massive trading volume.
As a result, the go-live date for the new system has been moved from April 2023 to late 2024. But the ASX has continued to work on the new system. It has appointed Accenture as an independent consultant to evaluate the proposed system and develop an implementation roadmap.
While blockchain-based technology may not replace the CHESS system entirely, it will make it easier to develop and maintain the new system. However, there will be some drawbacks. First, the new system will not be as resilient as CHESS, which has been used in production for two decades. Then there will be the issue of implementing new features. The new system will have to pass strict requirements to be approved by the RBA and Asic.
As a result, ASX has revised its schedule for CHESS replacement. Initially, the company estimated the replacement project would cost between $30 million and $50 million. It originally planned for the new system to go live in the early part of 2021. But the timeline has been pushed back several times, including for industry testing, operational readiness, and market trials.
The new system will have more security and privacy benefits than the current CHESS system. It will also reduce costs and technology risks. The solution involves an underlying system that synchronises data in private stores and uses a global synchronisation layer. The software runs on nodes – pieces of software that will initially be offered as a managed service.
Progress of project now in “secure private network”
The Australian Securities Exchange is in the midst of developing a blockchain-based trading system. The new system is designed to eliminate the need for intermediaries and make transactions faster and cheaper. It also aims to be more secure and scalable. The project has been in development since January 2016, when ASX partnered with US-based blockchain startup Digital Asset Holdings.
This new system will give investors and issuers direct access to a record of transactions. The exchange is already working on upgrading its CHESS system to Digital Asset technology and is on track to complete the process by early 2019. Market trials are expected to last up to two years, after which the exchange will have a fully functioning version of the new technology.
Currently, stock exchange processes are expensive, time-consuming and prone to risks. Blockchain technology could simplify these processes and reduce operational costs and counterparty risks. It could make stock exchanges more efficient by reducing the time spent on settlement and other procedures. It may also decrease the costs and risks involved in securities servicing and other stock market processes.