The Future of Clearing and Settlement in Australia: Part II - Distributed Ledger Technology

Abstract

Part I of this article analyzed the legal and regulatory issues that exist in Australia’s current clearing and settlement infrastructure for shares. Part II of this article looks to the future and analyses the new system (‘CHESS 2.0’) that the Australian Stock Exchange (ASX) proposes to introduce. CHESS 2.0. will use distributed ledger technology (DLT) to process trades. This article will examine the mechanics for the clearing and settlement of shares in CHESS 2.0 and some of the new features that the ASX proposes to introduce. It analyses the legal and regulatory framework in Australia and considers whether CHESS 2.0 will be able to operate under the existing legal regime. It also examines how the new system will affect the rights of investors and provides recommendations for strengthening their rights. Moreover, it recommends that the ASX should implement a system of crypto-securities in the future.

Keywords: CHESS, Clearing and Settlement, Distributed Ledger Technology, ASX, CCP, Central Counterparty, Crypto-securities, Cryptography, Immutability, Traceability, Negotiability, Settlement Finality