ASX share price marching higher on revamped CHESS replacement

The blockchain is out as the ASX announces the next phase of its CHESS replacement project.

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The ASX Ltd (ASX: ASX) share price is marching higher today amid fresh news on the company's long-running CHESS replacement project.

Shares in Australia's largest securities exchange closed Friday trading for $57.13. In afternoon trade on Monday, shares are swapping hands for $58.26, up 2%.

For some context, the S&P/ASX 200 Index (ASX: XJO) is up 0.1% at this same time.

Here's what's happening with the company's CHESS replacement efforts.

ASX shares rise on CHESS replacement news

At 29 years of age, CHESS – the ASX's Clearing House Electronic Subregister System – is getting quite long in the tooth.

So too is the company's CHESS replacement project, which kicked off way back in 2015.

The system enables the transfer of ownership of any ASX shares you buy or sell and provides an electronic subregister for shares in listed companies.

As you may recall, the original plan was to replace CHESS with a blockchain-based system. But those plans were shelved in November last year, with the company citing significant challenges with the solution design, and its ability to meet the exchange's requirements.

That botched effort cost the company some $250 million.

Today, the ASX announced it will proceed with a "product-based solution" delivered by Indian-based TATA Consultancy Services (TCS).

What's the advantage and cost of the new system?

Management noted that the CHESS replacement system will provide "a reliable, supportable and scalable platform that meets the needs of the Australian market now and into the future".

They added that it also satisfies "the licence obligations of ASX Clear and ASX Settlement and is capable of supporting potential new services and innovation from ASX or other providers".

The company plans to roll out the CHESS replacement system in two stages.

The clearing service will be delivered in the first stage, with the settlement and sub-register services to come in the second stage. Management expects this approach to reduce overall delivery risk.

The first stage is forecast to be implemented in 2026, with the second stage rolled out in 2028 or 2029.

The ASX estimates the first release (the clearing service) will cost between $105 and $125 million. It said this will be spread over multiple years, with the capex component for FY 2024 already captured in its existing FY 2024 guidance.

Commenting on the system upgrade, CEO Helen Lofthouse said:

When we took the decision to reassess the CHESS replacement solution design, we wanted to select a solution that would serve the whole market, and to do that we needed extensive input from our customers and industry stakeholders.

We significantly increased engagement during 2023 and the selected product, implementation approach and scope reflect discussion and feedback from various forums.

Lofthouse added, "The ASX will maintain our investment in the current CHESS platform to ensure it continues to operate efficiently and reliably until the replacement is implemented".

The next formal consultation with stakeholders is scheduled for the first quarter of 2024.

Motley Fool contributor Bernd Struben 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 Scott Phillips.

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