RBA and ASIC Concerned Over The Leading Stock Exchange’s Risk Management
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The Reserve Bank of Australia (RBA) and the Australian Securities and Investment Commission (ASIC) recently expressed growing concerns surrounding Australia’s leading stock exchange. More specifically, the two are concerned regarding the exchange’s management of operational risk after a batch settlement failure in December 2024.
The incident emerged from an issue tied to the current Chess system’s memory allocation logic. This meant that ASX was not capable of completing batch settlement for the cash equities market on the specific day when the issue arose.
In response, it started a process to cancel batch settlement and reschedule it to take place on the following business day. After observing the irregularity, the regulators sent a joint letter to ASX, expressing concerns regarding the potential for operational failures that would affect the Chess System’s ability to reliably service the equities market.
They also pointed out their concerns regarding the speed and nature of ASX’s remediation actions after the original incident.
The Regulators Insist That The Exchange Takes Action
The RBA reacted to the first incident by conducting an out-of-cycle assessment of Both ASX Clear and ASX Settlement against its Financial Stability Standard for Operational Risk. As part of the move, it revised its rating for the Operational Risk standard to ‘not observed,’ and it recommended that ASX outline and communicate publicly how it intends to improve resourcing and third-party support arrangements for Chess.
Other than that, the exchange was also to outline options for implementing contingency arrangements. Michele Bullock, the RBA governor, said that the exchange operates critical infrastructure which plays a central role in the country’s financial system.
This is why its management of operational risk is so important, and why it became a concern for both the RBA staff and the Payments System Board. The Chess incident only underscored the concerns that were already present for some time, and now, the underlying issues must be addressed as a priority to strengthen the resilience of Chess.
A similar statement came from Joe Longo, the chair of ASIC, who said that regulators are prepared to take further action if necessary. He noted that the actions taken thus far underscore the deep concerns with ASX’s management of the Chess system, and ASIC will continue to consider further action.
