The Accenture report that led the Australian Securities Exchange (ASX) to abandon a blockchain-based foundation for its CHESS core replacement puts the future of similar settlement use cases in doubt.
The combination of distributed ledger technology (DLT) and smart contracts inhibited the performance and scalability of the CHESS replacement, the report said.
“The review highlighted a need for greater consideration of how the business workflows interact with the application, ledger, and how the current design contributing to challenges in achieving scalability, resiliency, and supportability”, the review stated.
Accenture singled out DLT as introducing latency “exacerbated with multiple layers … in the current architecture”.
The ASX’s role as the “final arbiter” of outcomes in trades minimised “many of the benefits of a DLT architecture”, the report said, and the ledger’s API would have needed “quality of service changes to enable throttling and control of actions of participants”.
The CHESS replacement’s architecture also presented scalability challenges; and “achieving scalability with concurrency is complex and requires appropriate designs”.
The report also noted that the CHESS replacement application software fails with more than 100,000 transactions (the report did not stipulate in what time period) “because of data running out of time”.
The report examined the smart contract language (Daml) and distributed ledger software (VMWare’s VMBC ledger) in the CHESS replacement project.
Regarding Daml, the review said “the current design and implementation in the CHESS replacement application does not take full advantage of the strengths of the language”, adding that it offers “little value” to participants processing business logic on-ledger.
“Daml may not be the most appropriate to solve for all business process, logic, and data”, Accenture said in the report.
While VMBC offered features like “resiliency, immutability, and provability of data”, the CHESS use-case focused on resiliency alone, “which adds undue complexity to the solution e.g., the consensus contributes to the round-trip latency.”
“VMware ledger arriving at consensus via a ‘slow path’ could impact latency and processing times”, the report added.
Recommendations
Accenture said the DLT strategy should be revisited or refreshed “to determine long-term use”, and added that the ASX needs to “understand DLT use in the technology stack”, which includes third-party applications, “day-2 CHESS features”, and the split between the ASX’s Synfini1 and CHESS.
The exchange also needs to consider whether it needs to consider or reconsider changing its business processes “to leverage the benefits of a smart contract language and DLT”, where those workflows “are in contention with the technology stack," Accenture advised.
The CHESS replacement’s design choices need to be revisited “with an eye to simplification”, Accenture said, and the ASX should “review architecture layers and assess value versus complexity” in the DLT, Daml, application design, and topology.
ASX still 'open minded' on redesign
The ASX this morning said it remains “open minded” on potential solution designs as it pauses its CHESS core system replacement to rethink the program.
During a joint investor and analyst briefing, ASX managing director and CEO Helen Lofthouse said the exchange “will absolutely be open-minded about what the right solution is”.
“I'd say we will go and look at the solution with very much with an open mind. It's our high standards for scalability, the safe implementation, the ongoing supportability, which is driving this decision but will absolutely be open-minded about what the right solution is," she said.
“I think that distributed ledger technology has a place and can play an important role in financial markets.
“But we'll be very open-minded about how we think about what the solution options are and really our focus is on providing the best clearing and settlement solution we can.
“We just need to be wide-ranging and very open in our thought process as we figure out what that is,” Lofthouse said.
She said that in terms of available alternatives, “there really isn't an off-the-shelf solution available that meets the needs of the Australian market” and that the ASX “needs to be very wide-ranging and thoughtful in how we look at the options”.
“Our regulators have really high expectations of us. That's entirely appropriate, and we'll continue to work with them really closely”.
Lofthouse apologised for the “impact that the ongoing delays to this project” as findings showed “key issues are mainly related to the application software readiness, the complexity in the integrated solution design, and in project governance.”
Kate Weber contributed to this report.
