A Stock Exchange Building Out Blockchain Isn't Buying the Hype

(Bloomberg) -- Australia’s leading stock exchange operator plans to roll out blockchain technology for settlements in 2021, it said this week. That doesn’t mean it’s buying into the hype around the new system.

While blockchain, a form of distributed ledger technology, will be soon replacing ASX Ltd.’s aging CHESS system as part of an upgrade, Peter Hiom, deputy chief executive officer, said he doesn’t see the new version as a radically different approach.

“We’re not entering the fourth dimension here,” Hiom said in an interview. “It’s a database architecture that lets you do a bunch of things much more efficiently than you can at the moment.”

“There is a blockchain that is synchronizing my data store with yours, but the data store itself is a database that exists today,” said Hiom. The innovation is the decentralized ledger that lets a client see ASX’s data, he said. “It’s actually taken an awful lot of risk and cost out of your back office because it is never the case that what you’ve got doesn’t match what I’ve got.”

Sydney-based ASX made one of the finance industry’s biggest bets yet on distributed ledger technology last year, tapping Digital Asset Holdings LLC -- the startup run by former JPMorgan Chase & Co. banker Blythe Masters -- to replace its equities clearing and settlements system. But the move comes as some other companies have been quietly shelving blockchain-based projects, and a lively debate has emerged about the technology’s usefulness.

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Still, some exchanges, clearinghouses and banks see blockchain as a way to simplify stock issuance and trading. This week Canada’s central bank, stock-exchange operator TMX Group Ltd. and the nation’s payments system used distributed ledger technology to clear and settle securities on an integrated platform as part of their Project Jasper research initiative.

“It’s a very clever architecture, but it is just a database architecture,” said Hiom about the technology. “It doesn’t sound very sexy when you say it that way, but that’s kind of what it is.”

©2018 Bloomberg L.P.