By providing distributed access to a single, verified source of truth, ASX’s blockchain-inspired system will open up new opportunities to digitise multi-party workflows, according to the exchange operator’s deputy chief executive officer, Peter Hiom.
The ASX’s project to replace its aging clearing and settlement system — CHESS, a COBOL-based system rolled out in 1994 — with a new system based on distributed ledger technology (DLT) is probably one of the highest-profile efforts to employ a blockchain-esque system in a critical production environment.
The new system will be a private, permissioned blockchain with segregated data. As a result, everyone participating in the network will be known and will need to meet certain security standards. In addition, the only data that they will hold in their node is the data which they are a party to, Hiom said during a panel held at VMware’s vFORUM event this week in Sydney.
(ASX and VMware in August said that they had signed a memorandum of understanding to collaborate on DLT initiatives.)
When the CHESS replacement goes live, the only full copy of the ledger will be maintained by the operator of the platform; i.e. the ASX. The new system will involve “segregating data, but synchronising it,” Hiom said.
The ASX executive said that the “secret sauce” of distributed ledgers is that a business can independently verify to itself that what it holds is “the truth, the whole truth, and nothing but the truth”. “You don’t have to go back to ASX to prove it; you don’t have to message backwards and forwards,” he said.
A node operator will know that they hold accurate information and that every other node operator also holds accurate information, and can also disseminate data and synchronise it among multiple parties.
“That’s pretty much inter-company straight-through processing that you can start to go after,” Hiom said. “Multi-party workflow, so-called, digitising processes that have been very hard to digitise because we’ve all had our own data source... that we haven’t had reconciled to each other. So tell me an industry that that isn’t of interest to.”
He said the insurance, legal, trade, finance, logistics and import/export are just some of the sectors that could benefit from DLT's “safe sharing of data where you’re not trying to solve the problem of trust, you’re trying to solve a problem of data synchronisation.”
Public blockchains, by way of contrast, are focused on the problem of trust, he said. That comes at the cost of efficiency because “nobody trusts anyone”. “Today everyone trusts ASX,” Hiom said. “Nobody worries about whether ASX is going to add up the number of BHP shares and get the right number.”
ASX will support two main methods of interacting with the CHESS replacement. One will be through operating a node. A second will be using messages in a similar fashion to current interactions with CHESS. ISO 20022 messages can be sent via ASXNet or SWIFTNet. (A third option for what ASX describes as “low volume users” will be a browser-based system.)
Every ASX customer currently participating in its development sandbox ahead of the new system’s launch is looking at both traditional messaging and node integration, Hiom told Computerworld.
“It’s not an ‘either or’ – it can be an ‘and’,” he said. “You can choose to run some services through the traditional messaging protocol, and you can also ... start to develop services over the node.”
“My expectation is that’s how many people will think about clearing and settlement, and then separate to CHESS replacement, there are others who were just looking at node-based interaction for other use cases,” Hiom said.
“I expect that most will use both types of interaction with the system and roll over to node-based interaction in time,” he added.
Initially, nodes will be operated as a managed service by ASX, running on hardware within its data centre.
The new system will support applications written in Digital Asset Modeling Language (DAML). The so-called ‘smart contract’ language was developed by Digital Asset Holdings, which is providing the underlying DLT technology for the CHESS replacement and is part-owned by ASX.
Hiom said that because DAML has been open sourced and an SDK is freely downloadable, it’s hard to get a sense of the exact numbers of organisations working on applications with the new language.
“We're interacting with quite a lot of organisations that are either already in the equity market or thinking about coming into the equity market,” he told Computerworld. “I don't put numbers around that because... we don't have full visibility on everything that everyone's doing.”
He said that it was also important to also consider the global context, with organisations including the International Swaps and Derivatives Association looking at employing DAML.
ISDA and Digital Asset in April this year announced they were collaborating on an “open-source reference code library” to help derivatives market participants adopt the ISDA Common Domain Model (CDM).
Hiom said that the initiative was “pretty profound for interest rate swap standardisation.”
“We’re quite encouraged by the level of interest we're getting, and we're starting to engage with those that are building applications,” he said. Some of those are “quietly getting on” with building applications “they'll talk about that when they're ready,” he added.