Australia regulator sues ASX over ‘misleading’ software upgrade statements

SYDNEY :The Australian corporate regulator has sued the country’s stock market operator alleging it misled the public about the progress of a troubled software upgrade and accusing the company of undermining financial market integrity and investor confidence.
The Australian Securities and Investments Commission (ASIC) said ASX, responsible for some A$5 billion ($3 billion)of trades a day, broke the law when it flagged in a February 2022 trading update that it was on track to switch to a new blockchain-based clearing and settlement platform the following year.
The lawsuit, which seeks unspecified fines, marks a low point for relations between ASX and its main regulator over a project initially billed as one of the world’s most ambitious use cases of blockchain-based technology.
ASIC chair Joe Longo previously described the software upgrade, which was ultimately shelved in November 2022 after years of mandatory consultation with market participants, as an act of hubris. On Wednesday he called it a “collective failure by the ASX board and senior executives at the time”.
The company had been told by its software developer for seven months that the sweeping project was falling behind, the lawsuit said. By late 2021, ASX itself had recorded the project status as “red”, meaning there were material risks to the delivery time.
“By the misleading conduct, ASX risked damaging perceptions of the integrity of the Australian financial markets and the confidence of investors,” the lawsuit said.
The lawsuit said that while the exchange gives out corporate governance recommendations to listed companies, its guidance about the software upgrade “undermined the principles it promotes for itself and other listed entities”.
ASX CEO Helen Lofthouse, who took up the role in August 2022, said in a statement the company was reviewing ASIC’s allegations, but “we recognise the significance and serious nature of these proceedings”.
ASX’s shares dropped as much as 4 per cent, underperforming a small gain in the broader market. 
LONG DELAYED OVERHAUL
ASX first said it wanted to upgrade its ageing settlement and clearing platform with blockchain-type technology in 2016. Under a new supplier, India’s Tata Consultancy Services, it now expects to have the project complete by 2029.
In the lawsuit, ASIC said Digital Asset (DA), ASX’s initial software vendor, had told ASX from July 2021 “there was a risk of continued delays to the delivery of code … and that this would put additional pressure on future milestones”. DA was not immediately available for comment.
In December 2021, DA gave ASX a revised timetable with later dates, but ASX rejected it because it didn’t match a published plan. A week before the February 2022 trading update, ASX’s audit and risk committee was told of the project’s “red” status, the lawsuit said.
Two days before the February 2022 update, the CEOs of ASX and DA met to discuss whether DA could supply a “descoped” version of the software to test, but there was no record of what they agreed on, added the lawsuit. In the trading update, ASX said the project was going to schedule and its CEO was retiring.
ASIC itself was criticised by a Senate inquiry this year for failing to foresee the full scale of problems with the ASX upgrade.  
ASX is due to announce its annual profit on Friday.
($1 = 1.5103 Australian dollars)