Here’s why the ASX (ASX:ASX) share price struggled on Wednesday

The watchdog has handed down consequences for an outage experienced by the ASX last year.

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The ASX Ltd (ASX: ASX) share price suffered today after the Australian Securities and Investments Commission (ASIC) concluded its investigation into a market outage in November 2020.

An ASIC review into the malfunction has resulted in the watchdog imposing extra conditions on licences held by ASX.

As of Wednesday’s close, the ASX share price is $93.39. That’s 1.45% lower than it was at the end of Tuesday’s session.

Let’s take a look at the news that drove the operator of the Australian stock market’s share price lower today.

A quick refresher

On 16 November 2020, the Australian stock market was closed after a glitch saw the ASX unable to facilitate trades.

It followed a software upgrade to the entity’s trading system.

As a result of the outage, ASIC began an investigation into ASX. The investigation looked into whether ASX had met its obligations under its Australian market licence.

Additionally, IBM Australia undertook an independent expert review into the ASX Trade software update project. 

IBM found ASX met or exceeded industry practices in most capabilities. However, it also found several factors suggesting the platform was not ready to go live.

ASX share price slumps as ASIC imposes new conditions

The ASX share price spent much of today in the red following news the investments watchdog has added clauses to the company’s licence to operate the Australian stock market on the back of last year’s unplanned outage.

The clauses demand the appointment of an expert to assess whether ASX’s assurance program for the CHESS replacement system – due to be launched in April 2023 – is fit for purpose. They will be identifying any shortfalls and reporting to ASIC.

While the program is ongoing, ASX will also have to seek verification from senior executives and its board about technology project readiness.

Finally, ASX will have to resolve issues that led up to the market outage. To do so, it will appoint an independent expert to assess remediations.

ASX managing director and CEO Dominic Stevens commented on the conditions:

We share the determination of our regulators to continue to strengthen market resilience. The new licence conditions are practical and are aligned with the action ASX is taking to improve the way we operate our business…

ASX is a heavily scrutinised organisation with high standards. While no process can eliminate all possibility of technology incidents, our continuous improvement programs have driven the significant reduction in incidents over the last five years.

The ASX board will also create individual executive accountability with links to remuneration consequences. ASIC stated the company’s executives’ interests must be aligned with remedial actions and the avoidance of further outages.

On today’s news, ASIC chair Joe Longo stated:

ASIC’s actions today are all about ensuring the efficient and effective future operation of Australia’s financial markets infrastructure. ASX and market participants must act to ensure that the market can function at all times, so that vital sources of capital are available to the economy.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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