Frequently asked questions

What is blockchain? A blockchain is a method of structuring data to create an immutable record of all updates to a ledger across multiple organisations. Blockchain is a type of distributed ledger technology (DLT). These terms are often used interchangeably. Not all distributed ledgers employ blocks or chain transactions.

What is distributed ledger technology (DLT)? A distributed ledger is a digital record of who-owns-what that can be securely shared to and updated by multiple organisations so that every entity is sure that what they see is what their counterparties see in near real time. But unlike traditional database technology, there is not necessarily a central administrator of the ledger, nor is there the need for a central data store.

Why is ASX replacing CHESS? While CHESS is a stable and reliable system, it is over 25 years old. It is time for it to be replaced with more contemporary technology in the next few years. CHESS was an innovation and market leading when it was implemented over 25 years ago, marking the way for the dematerialisation of share ownership in Australia. CHESS continues to perform the functions of clearing and settlement for cash equities (shares). ASX replacing CHESS with new DLT brings greater benefits which include; greater market efficiencies through better record keeping, reduced reconciliation, more timely transactions and better quality data.

What does this mean for my business with regard to CHESS, and equities clearing and settlement? The CHESS system and its procedures and operations remain unchanged and CHESS continues to be supported by the ASX. The existing equities clearing and settlement arrangements will continue to operate normally until ASX advises the market of any changes related to the replacement of CHESS.

Who is Digital Asset? Digital Asset is the leading provider of distributed ledger technology to regulated financial institutions. Digital Asset combines unparalleled financial markets leadership with world class technologists across multiple fields in one of the fastest growing fintech companies in the world. The Digital Asset Platform is the only Distributed Ledger platform to have been developed according to the production requirements of the world’s largest financial institutions. Founded in 2014, Digital Asset now has offices in six countries, serving global clients like the ASX and DTCC. They understand the needs of regulated markets and how to apply this new technology to existing institutions effectively and safely. ASX conducted a global search for DLT companies working on applications of DLT for financial services. Viability workshops were then conducted with a shortlist of firms. The list was further narrowed, with some firms invited to Sydney for an intensive development and analysis workshop. At the conclusion of this process, Digital Asset was selected as the successful partner. ASX's relationship with Digital Asset is two fold: i) As a shareholder with a director appointed to Digital Asset’s Board; and ii) As a joint development partner to produce a replacement system for CHESS. Further details can be found by visiting https://www.digitalasset.com/about

Is ASX using bitcoin? No. ASX is not using bitcoin or any cryptocurrency in any part of the development of its technology solution.

Will ASX give everyone access to the distributed ledger? No. ASX is not using a publicly available implementation of DLT. ASX will use a permissioned system where ASX clients – that meet the necessary regulatory requirements - are permissioned to access the network, just as they do today when connecting to CHESS.

Are government and regulators involved? Yes. To ensure the maintenance of Australia’s extremely high standards for critical financial market infrastructure, ASX is keeping government and regulators involved in developments and across all relevant decisions.

What do I need to do now, do I need to start planning resources, budget? ASX provided details on scope and timelines in a response to the consultation feedback paper released in September 2018 – see Key Milestones. A first release of Technical Documentation for the DLT system has now been released. See Latest Updates for further details.

Will there be any further changes to CHESS in the interim period? Any required changes to the existing CHESS system will be limited to service, support and high priority items. ASX publishes a quarterly Market Notice to advise of technology upgrade releases planned for the next 6 to 12 months across the various customer facing platforms, including CHESS.

How can participants connect to the new system? At a high level, there are three main connectivity options: 1. The first option is direct integration where a user is transacting with the new system via a node. Initially this is only being offered to clearing and settlement participants but will made available to other interested users over time. 2. The second option is messaging and is similar to how users interact with CHESS today by sending and receiving messages to keep systems updated. For users wanting to connect using messaging, they can either use AMQP over ASXNet or alternatively they can use SWIFTNet. Both options use ISO 20022 messaging. 3. The third option is a new secure browser based solution. This can be used by low volume users but also provides a channel for entering ad-hoc messages which are not supported elsewhere. See Webinar recording and presentation slides on 3 October 2018 for further details.

What is DAML? A key element of CHESS Replacement is the use of the DA Platform and Digital Asset Modelling Language, or DAML. DAML is a domain-specific language for modelling financial products and processes which has been designed for distributed ledgers. It codifies complex, real-life, multi-party agreements with deterministic execution and contains built in safeguards for type-checking, testing & refactoring. All modifications to the ledger happen via DAML commands, resulting in DAML events. The ledger is updated by a participant upon submission of a valid transaction (DAML command). The rules as encoded in DAML dictate under which conditions contract instances are added/archived. DAML defines the need-to-know basis automatically, on a per-contract basis, enabling the DA Platform to deliver confidentiality characteristics without sacrificing integrity. Contract events or transactions are broken up into sub-transactions as necessary, based on participants’ rights to data, and these sub-transactions are then selectively permissioned to participants. For further information please click here.

What are the key features of a node? A Node is software that allows participants to connect to the CHESS Replacement distributed network directly. ASX will initially host the node within ASX data centres which allows participants to propose transactions, stream data and interact with their permissioned data. Interaction via a node is carried out using the Ledger API - no messaging gateway is required. Once a transaction is submitted to a node, the relevant calling application will receive both an update to the success of the transaction as well as the resulting state change.

What are the benefits of direct access (via a dlt node)? Direct mutualisation Access to shared source of truth data – full permissioned access to data held by ASX

Liberation of data to entitled parties Real-time updates to state changes Real time updates to state changes without having to maintain a disparate system

Common database stack allowing new applications to work across the market Workflow New applications can access data directly from the ledger and incorporate into subsequent processes or workflows

Multiple applications can connect directly without the need to go through traditional back offices as a gateway

Client developed workflow – the potential to develop your own templates in DAML Innovation and extensibility Incorporate functionality to supplement existing functions e.g. query and analytics, automate risk and compliance

Extend platform to replace existing tools e.g. trade allocation

Where do I find out more about how the new service will work, connectivity options and functionality? In December 2018 ASX released the first tranche of Technical Documentation. The purpose of the Technical Documentation is to facilitate development and testing of the CHESS Replacement application. There will be subsequent releases of documentation. This documentation is broken down in to: Functional specifications, messaging, connectivity, environments; and, testing

Additional support materials including release notes, what’s new, FAQs and a glossary. See Latest Updates for details of how to register and access the Technical Documentation portal.