ASX's costs surge in software upgrade

The Australian Securities Exchange (ASX) said that the second phase of an upgrade to its clearing and settlement software will likely cost up to $320 million.

Announcing the cost estimate for the first time, the bourse operator added that it expects the second phase implementation to be completed by 2029.

ASX also aims to conclude the first phase - the clearing service - in 2026, with associated costs now tracking at the higher end of its previous estimate of $105 million to $125 million.

While the timeline seems reasonably extended, the phase 1 costs are now tracking at the top end of expectations and this pushes capital expenditure towards the top end of ASX’s prior guidance range, Citi analysts said.

ASX shares fell 4.7% to $65.87 in its weakest trading session since mid-June.

The update on the software overhaul comes months after the Australian Securities and Investments Commission sued ASX, alleging it misled investors about the failure to upgrade its critical settlement and clearing infrastructure, known as CHESS.

The share market operator hired India's Tata Consultancy Services (TCS) last year to overhaul CHESS, after abandoning a widely criticised effort to upgrade it to a blockchain-based system.

That effort raised the ire of shareholders and regulators, and ultimately ended with a A$250 million write-down and slump in the bourse operator's share price.

ASX will deploy a TCS product that is already being used to manage share settlement and clearing in New Zealand, South Africa and Finland.

ASX Managing Director and CEO Helen Lofthouse said implementing the CHESS project over two releases would enhance its reliability.

The bourse operator's decision to undertake complex IT projects means its prime focus will likely remain on appeasing regulators and various stakeholders, with investors further down the pecking order, Citi analysts said.

(Reporting by Himanshi Akhand and Rishav Chatterjee in Bengaluru; Editing by Mohammed Safi Shamsi, Rashmi Aich and Nicholas Yong)