Ross Greenwood speaks to Peter Hiom, ASX Deputy CEO, about why they are using blockchain technology to manage the clearing and settlement of equity transactions
Introduction: Why is the ASX using Blockchain?
Ross Greenwood: Great to have your company here on Money News going right around Australia. One thing many Australians don’t understand or simply overlook is a stock exchange in our future’s markets. Now, you take it for granted that you can buy and sell and everything happens pretty much electronically. You take that in your stride. What you may not realize is that Australia had one of the very first electronic trading systems anywhere around the world. It has been at the forefront of technology when it comes to trading systems for many decades.
In fact, it continues even today. Because today the ASX announced an intention to replace its chess system which is a current Clearing House effectively for shares. It’s going to do so with technology that has been investing into and try to do partnerships with to try and use blockchain. Now for those people and we’ve explained this before, blockchain is the means of transaction for Bitcoin.
Now, just to explain that even further, it means that a person on the other side of the world knows that you have the Bitcoin and can pay for it with confidence knowing that their particular piece of electronic currency will turn up in their account. Therefore, if you could apply this to other transactions, such as share market transactions, what you could also do is speed up the system massively. In other words, you could have virtually instantaneous trades. Now, that’s being announced today by the ASX. Let’s go to the Deputy Chief Executive of the ASX, Peter Hiom, who’s on the line right now. Many thanks for your time, Peter.
Interview with: Peter Hiom, ASX, Deputy CEO
Peter Hiom: Good day, Ross. No problem. Nice to be here.
Ross Greenwood: I tried to explain that as simple as I could to people. I trust that’s okay. You’ve done a deal today with a company called Digital Asset. Just explain Digital Asset and what this deal is.
Peter Hiom: Yes. The Digital Asset is a company out of New York that we’ve been working with the last couple of years. They are a technology software company that specializes in the technology you just described in blockchain technology. They are a group of executives that have got financial market experience. It’s particularly architected for our markets as opposed to blockchain technology for other uses. They’re a company that we’ve been working with closely and I’ve followed very very closely over the last two years. They are the company that has built the software for us but they have taken us to the decision we made today.
Ross Greenwood: Okay. The project itself, when would you have managed to imagine that you can start to move off the chess system and onto this new system that’s going to be built?
Peter Hiom: Well, we are now at the point of– we’ve been consulting with our customers for about a 12 month period now. We have a good understanding of what they want the new system to do. We’ve got some thinking to do about how we prioritize what they want. We’re going to tell the market that at the end of March, and at that time we’ll give the market a bit of a sense as to when we think we can implement the new system.
What I would say, Ross, is that this is a complicated piece of technology that exists today. Chess is a system which is barnacled on to all of the banks and the brokers in Australia. Removing it is not a trivial exercise. We’re working very closely with our customers to understand how we did that in a way that makes sense for them. We are some way away from implementation, but we’ll have more of a sense once we give the market some news at the end of March.
Ross Greenwood: The truth is, as I described at the beginning, the hope is or the expectation is that the ability to transact. It would not need a day, it would not need a couple of days for clearance to take place. The clearance could happen almost immediately and that would streamline the whole thing, wouldn’t it?
Peter Hiom: Well, one thing it’s worth pointing out is that you’re right. The technology we’re interested in is the same technology as that it is used for Bitcoin. It often uses blockchain. We call it distributed ledger technology because there are particular aspects of the technology that solve particular problems for us. One of them is as you describe is how long it takes to work out who bought what from whom and how long it therefore takes to settle. Also, it’s about the availability of real-time information to a much broader set of users in the market.
An example of that would be how long it takes for you to receive a dividend after a company pays it. That takes a number of days today. Imagine what that would mean for the superannuation account of a super annual over 40 years if they got their dividends not in 12 days but let’s say the day after the record date. It’s not just about clearing because actually some parts of clearing are useful that require a little bit of time to operate. It’s called netting. It’s actually about making it more efficient for the clearing and settlement of transactions rather than clearing the gross number of transactions you clear the net amount of transactions.
It’s not always true to say you want everything to clear in real time. Once you have all the trades on a distributed ledger, you can do things much more quickly. You can create effectively a standard way of our customers interacting with that data and effectively creates an whole new opportunity for customers to create new services and for financial technology companies to write new applications that are not possible today.
Ross Greenwood: I’ll tell you what, this is one of the great things, but also, just a note that it is the ASX itself that is at the forefront of this type of technology. Also, bear in mind the chess even the Clearing House electronic sub-register system when it was introduced itself in the 1990s was world leading as well. The Deputy Chief Executive of the ASX, part of his project, Peter Hiom, I appreciate your time in the program tonight.
Peter Hiom: No worries, Ross. Thanks very much for your time.
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