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asx: the stock exchange plays chess
It’s 2015 and you are CEO of the Australian Stock Exchange, aka ASX Limited. You make some of the fattest margins of any major exchange, partly because you haven’t upgraded in your main IT system for over 20 years.
That main system, which handles all your trades is CHESS (Clearing House Electronic Subregister System), but it is archaic software and expected to fail. Which means you now have to decide how to upgrade it.
Do you invest in a straightforward renovation of the current CHESS system?
Or do you go for a system based on latest blockchain technology? Blockchain is a new way to securely track transactions using a distributed digital ledger. It could improve customer service and improve security and speed.
the strategy standoff
Strategy A: Blockchain Upgrade for Checkmate in 1
ASX could lead to be the first major exchange in the world to put its core trading infrastructure onto blockchain. This would give customers a platform they could use to build new services and overall, it would put Australia at the forefront of financial technology innovation.
On the other hand, the tech is unproven and going this way might needlessly stress out the regulator.
Strategy B: Renovate CHESS for a Strong Opening
ASX could renew CHESS by updating the database with the technology that most institutions already run. This would avoid the risk of jumping to new technology as a first-mover and would deal with the tech debt pile up.
However, this might allow new competition the opportunity to leapfrog ASX and offer alternative capital marketplaces.
so, which did they choose?
Cast your vote to find out!
Or do you do a blockchain upgrade?
Do you renovate CHESS?
good job, strategy a was chosen!
better luck next time, strategy a was chosen!
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But what did this mean for ASX...
outcome: facilitator commentary
Matt Braithwaite-Young
Managing Partner
t +61 2 9002 3100
In 2017 ASX chose Strategy A and went for a blockchain. But it was a disaster.
Regular readers (you handful of legends) might feel déjà vu because our Channel Tunnel case was about engineers choosing new tunnel-boring machines over the traditional method. It worked. Sometimes it’s good to go bold and back the new technology.
But often, as they say: “the cowboys get the arrows. The settlers get the land.”
The ASX got the arrows.
In fact, trade press reported this project being so challenging the design phase wasn’t even finished by the time the work on the software buildout started.
Castling Back to CHESS
By 2022, when a new CEO (and a new set of eyes) arrived, ASX brought an auditor to review the project. They found, ehem, "significant challenges."
So ASX pulled the plug on blockchain and wrote off $255 million, vaporising a quarter of a billion in shareholder equity.
They then announced their plan was to go "down the more conventional route," right back to Strategy A.
At least they gave it a nudge.
When the Channel Tunnel engineers bet on tunnel-boring in chalky seabed, the situation at least played to the proven strengths of boring machines. There was a strong reason to believe it would work.
ASX, on the other hand, bet on technology that had never been proven for this kind of job, certainly not at a massive scale and for critical financial infrastructure.
Wrong Opening - Why the Move Backfired
"World-first" is a feature you might not actually want.
It reminds me of when I had my hip replacement. I was looking at all the new and interesting emerging implant technologies. But in the end my surgeon said: “do you really want to be the first to have a new type of implant?”
All of this shows the value of asking, “what if we’re wrong.”
How to Plan Your Best Moves
If your business is staring down a big technology or transformation decision (and right now is there any business that isn’t?) then a Turning Leaf strategy workshop will help your team pressure test your next big calls.
And our facilitated model means the people who'll have to deliver the plan are the people making the plan, so they’ll be committed to making it happen.
To learn more, call Matt on +61 2 9002 3100.
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