An Australian Securities Exchange (ASX) shareholder has signaled its intention to take legal action against former ASX officers and directors over the exchange's failed blockchain-based clearing and settlement overhaul. The move adds a new layer of governance scrutiny to a project already marred by regulatory sanctions and public admissions of misconduct.
On Wednesday, ASX disclosed that Rosherville Pty Ltd had notified the exchange of its proposal to apply for leave to commence a statutory derivative action under sections 236 and 237 of Australia's Corporations Act. If the Federal Court grants approval, Rosherville would bring proceedings on behalf of ASX, targeting the individuals believed to be responsible for overseeing the ill-fated project. The exchange emphasized that no allegations have been made against ASX itself, and the court has not yet assessed whether the proposed case can proceed.
Background of the CHESS project
ASX began exploring a replacement for its Clearing House Electronic Subregister System, commonly known as CHESS, in 2016. CHESS is the backbone of Australia's equity market, handling the settlement of trades and the registration of shareholdings. The system, which has operated for decades, was considered outdated, and ASX sought to modernize it with distributed-ledger technology, a form of blockchain.
In December 2017, ASX announced it had selected a distributed-ledger platform developed in collaboration with New York-based Digital Asset. At the time, the exchange was widely expected to become the first securities exchange in the world to deploy blockchain for its core post-trade services. The project was hailed as a pioneering move, with the potential to reduce costs, increase transparency, and enable near-real-time settlement.
However, the intended launch was repeatedly postponed. Technical challenges, scope creep, and governance issues began to emerge. In November 2022, ASX paused the project after an independent review conducted by Accenture uncovered significant problems with the system's design and its ability to meet the exchange's requirements. The review found that the project was not ready for the planned April 2023 launch and that more work was needed.
In May 2023, ASX formally abandoned blockchain for the CHESS replacement and said it would evaluate more conventional technology options. The decision marked a stunning reversal for an exchange that had been a global cheerleader for blockchain adoption. The project had already cost hundreds of millions of dollars, and the eventual write-down further eroded investor confidence.
The regulatory action against ASX
The Australian Securities and Investments Commission (ASIC) took a keen interest in the failed project. In August 2024, ASIC sued ASX, alleging that the exchange lacked a reasonable basis for telling the market in February 2022 that the project was "progressing well" and on track for an April 2023 launch. ASIC argued that ASX's public statements were misleading and deceptive, and that they failed to disclose known technical problems.
ASIC did not stop at the corporate entity. It called the episode a collective failure by ASX's board and senior executives, laying the groundwork for potential individual accountability. The regulator's action sent a strong signal that directors and officers could not simply walk away from major project failures without facing consequences.
In June 2026, ASX admitted to misleading conduct linked to the blockchain replacement project. The admission came after years of legal proceedings and gave ASIC a decisive victory. On July 3, 2026, the Federal Court ordered ASX to pay a $14.4 million penalty and $2.1 million toward ASIC's costs. The penalty, while substantial, was widely seen as less important than the reputational damage and the precedent it set.
Rosherville's proposed derivative action
Rosherville Pty Ltd's notification to ASX introduces a new dimension to the saga. A statutory derivative action allows a shareholder to bring a legal claim on behalf of a company when the company itself is unwilling or unable to act. This mechanism is intended to hold directors and officers accountable for breaches of their duties, including the duty of care and diligence, the duty to act in good faith, and the duty to avoid conflicts of interest.
Rosherville will need to convince the Federal Court that it should be granted leave to proceed. Under section 237 of the Corporations Act, the court must be satisfied that the shareholder is acting in good faith, that the proposed action is in the best interests of the company, and that there is a serious question to be tried. The court will also consider whether ASX itself has decided not to bring proceedings or is likely to do so.
Rosherville has not yet identified the former officials it intends to sue, nor has it detailed the specific breaches it alleges. It has also not disclosed the remedies it will seek. However, legal experts suggest that the focus will be on whether the directors and executives responsible for the CHESS project failed to exercise reasonable care and skill, particularly in light of the Accenture review and the subsequent admission of misleading conduct.
The proposed lawsuit could test whether shareholders can hold former ASX leaders accountable for overseeing one of Australia's costliest financial-technology failures. If successful, it could open the door to similar actions against directors of other companies that have suffered major project failures.
Implications for corporate governance
The case is being closely watched by corporate governance experts and institutional investors. It raises important questions about the extent to which directors can rely on management and external advisers when making significant strategic decisions. In the ASX's case, the board reportedly received regular updates on the CHESS project but may not have probed deeply enough into the technical risks.
Derivative actions are relatively rare in Australia, largely because they require court approval and can be costly and time-consuming. However, they are becoming more common as shareholders become more assertive in demanding accountability. The ASX case could set a precedent for how courts assess board oversight in the context of complex technology projects.
Another key issue is the interplay between ASIC's regulatory action and a private derivative claim. ASIC's successful case against ASX established that the company made misleading statements, but it did not result in any findings against individual directors. Rosherville's action would seek to extend liability to individuals, arguing that they breached their duties by allowing the misleading statements to be made or by failing to prevent the project's collapse.
ASX has said it intends to cooperate with the court process and will not comment further on the matter. The company has already made significant changes to its leadership and governance structures in the wake of the project's failure, including replacing its CEO and several board members. But the legal battle is far from over.
The broader technology context
The failed CHESS overhaul is often cited as a cautionary tale for the adoption of blockchain in regulated financial infrastructure. While blockchain has been successfully deployed in various niche applications, the ASX project showcased the difficulties of scaling the technology to handle the enormous volume and complexity of a national clearing and settlement system.
Blockchain enthusiasts once predicted that the technology would revolutionize the financial industry, but the ASX experience demonstrated that replacing legacy systems requires more than just choosing the right platform. It requires meticulous project management, realistic timelines, and robust governance frameworks. The ASX's decision to abandon blockchain was a clear admission that the technology, at least in its current form, was not yet ready for such a critical role.
Other exchanges around the world have also explored blockchain, but many have opted for hybrid solutions or delayed their implementations. The ASX's missteps have made boards more cautious about embracing emerging technologies without fully understanding the risks.
What happens next
Rosherville's application for leave is expected to be filed in the near future, and the Federal Court will then determine whether the case can proceed. If leave is granted, the matter will go to a full trial, which could take months or even years. The defendants, once identified, will likely argue that they acted in good faith, that they reasonably relied on professional advice, and that the project's failure was due to external factors beyond their control.
Meanwhile, ASX continues to work on a replacement for CHESS using conventional technology. The exchange has indicated that it hopes to have a new system in place by the end of the decade, but no firm timeline has been set. The operational risks of running the existing CHESS system, which is now decades old, remain a concern for market participants.
For investors, the outcome of Rosherville's action will be a bellwether for director accountability in Australia. If the shareholders succeed, it may encourage more such actions against directors of companies that have overseen failed projects. If they fail, it may reinforce the legal barriers that protect directors from personal liability even when their decisions have costly consequences.
The ASX's ordeal has been a sobering lesson for the entire financial technology sector. It shows that innovation carries risks, and that those risks must be managed with rigor and transparency. As the Federal Court prepares to hear Rosherville's application, the eyes of the corporate world will be watching closely.
Source:Cointelegraph News