The equity market of the Australian Stock Exchange (ASX) suffered an outage last November following the implementation of a new version of the Nasdaq equity market trading system. Shortly thereafter, ASX officials commissioned an independent review to provide an explanation for trading interruption.
Released last week, the preliminary results of the review indicate the updated system was not operationally ready for prime time.
“Shortly after the market opened on Monday 16 November 2020, a software issue causing a data problem was detected in the new Nasdaq Financial Framework release of the ASX equity trading system,” according to ASX officials. “This required ASX to close the market for the rest of the trading day. Nasdaq identified the root cause to be an issue with its software code that caused incorrect functionality in the tailor-made combinations order book.”
The trio behind the investigation — the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA), and IBM Australia Ltd. — “identified several key shortcomings” on the part of ASX officials that contributed to the outage.
The main problem areas were:
- “The ASX Trade system was not ready to go-live considering ASX’s near zero appetite for service disruption. This was the case even though the formal implementation readiness processes were completed and verified by multiple parties without objection to go-live;”
- Gaps in the rigor “applied to the project delivery risk and issue management process expected for a project of this nature,”
- And other concerns such as “risk and issue management, project compliance to ASX practices, project requirements and the project test strategy/planning did not meet accepted industry practices.”
Overall, the investigators made “recommendations in seven key categories: risk, governance, delivery, requirements, vendor management, testing and incident management,” according to their report.
“The independent expert found that ASX met or exceeded leading industry practices in most areas, but the conclusion that the project was not ready for go-live is very disappointing,” says Joe Longo, ASIC chair, in a prepared statement. “ASX has acknowledged and accepted the need for improvement. We do, however, require assurance that these improvements are implemented effectively and result in an overall improvement to ASX’s enterprise-wide project management practices.”
In response, ASX officials acknowledge the findings of the report and say that they are “engaging closely with both regulators and will address all of the report’s recommendations.”
In fact, Dominic Stevens, ASX managing director and CEO, says that the exchange has already developed “a detailed response plan for execution over the next 12 to 18 months, and we’ll commission the independent expert to review our actions to meet its recommendations. Our delivery of this program of work will be under the oversight of ASIC and the RBA.”
Stevens adds that ASX officials have already done the following:
- Reviewed its operating model “to ensure ASX’s structure best reflects our strategic priorities, better aligns management roles, enhances management responsibility and accountability, and sharpens our focus on customers;”
- Realigned its teams under “four business areas — markets, technology and data, securities and payments, and listings. Under this new structure the former equity trading business now reports to Helen Lofthouse as part of our new Markets division, sitting beside our derivatives trading business. The executives running the four business lines all report directly to me as CEO, with clearer accountability for services, operations and projects within their businesses;”
- Launched “an expanded customer function run by Val Mathews. This aims to improve the end-to-end experience for customers by bringing together our customer-facing operations, communications, marketing, digital and program delivery activities;”
- “Refined and improved our working practices for new service releases with Nasdaq;
- “Engaged external specialists to improve our quality assurance and testing capabilities;”
- “Aligned our project risk management and enterprise risk management frameworks more closely;”
- “Enhanced the ASX delivery framework to improve consistency in our approach to delivering projects;”
- And “reviewed the assurance plan for the CHESS replacement project covering project governance and functional and non-functional project objectives, including testing, project risk and issues management.”
Speaking of CHESS, Stevens says that the previously delayed, blockchain-based replacement for the incumbent trading engine known as the Clearing House Electronic Subregister System (CHESS) “remains on track.”
“We will ensure that any relevant insights that have not already been built into the CHESS project are taken on board,” Stevens says. “CHESS replacement is making good progress towards its go-live date of April 2023. With the disruption caused by COVID and the related large increases in volume, ASX consulted the industry on an updated implementation plan last year, with substantially more time added for testing and quality assurance activities.”
ASX officials are enlisting “multiple external experts” to help with “cybersecurity, testing, performance, data migration and governance, alongside the project’s independent assurance program,” Stevens says. “We will continue to work to ensure CHESS replacement remains on track to deliver enhanced infrastructure for the Australian market safely and securely.”