The Australian Securities Exchange Ltd., Australia’s primary stock exchange, announced today that it will soon use blockchain technology to record, clear and settle trades.

Today’s announcement follows a successful build of digital ledger blockchain technology by ASX partner Digital Asset Holdings LLC, a blockchain infrastructure developer, for core equity clearing and settlement functions.

“After so much hype surrounding distributed ledger technology, today’s announcement delivers the first meaningful proof that the technology can live up to its potential,” said Blythe Masters, Digital Asset’s chief executive.

The new platform will replace CHESS, the Clearing House Electronic Subregister System, which is software used by ASX to record shareholdings and manage equity transactions in Australia. At the time it was introduced in the 1990s, CHESS was considered a world-leading settlement platform designed to provide name-on-register functionality, electronic communications and help remove paper share certificates.

ASX partnered with DA two years ago, building toward today’s announcement as part of two and a half years of experimenting with and testing blockchain platforms. The implementation from DA won out amid over 80 other blockchain platforms.

“ASX has consulted extensively on the needs and priorities for replacing CHESS, including with customers, share registries, software vendors, other exchanges and industry associations,” said Peter Hiom, ASX’s deputy chief executive officer. “We’ve given over 80 digital ledger technology system demonstrations to more than 500 attendees, and conducted over 60 CHESS replacement workshops for more than 100 organizations from the global financial services industry.”

Blockchain technology is the same system that underlies the world’s biggest digital currency bitcoin, which very recently exceeded a market capitalization of $270 billion. A properly implemented blockchain provides a cryptographically secure transaction history that can provably show the transfer of digital assets using a tamper-proof, third-party auditable ledger. This is perfect for intangible financial property such as securities and stocks.

Securities and settlement functions tied to blockchains has been tested by companies looking to change the stock exchange and securities industry. Recent examples include the London Stock Exchange Group plc teaming up with IBM Corp. to digitalize corporate securities transactions for small and medium-sized businesses and Chain Inc. becoming the first company to successfully transact a private security over U.S. stock exchange Nasdaq’s Linq blockchain platform.

An Orian Research report released in November predicted the blockchain technology market would be worth $3.6 billion by 2023. Because of potential applications with digital assets – including securities and stock exchanges – numerous companies have begun outreach into the industry. They include Microsoft Corp., Deloitte Touche Tohmatsu Limited, Alphapoint Technology Inc., BitFury Group Inc., Coinbase Inc. and, as mentioned above, IBM Corp. and Nasdaq.

In 2016, Goldman Sachs analysts predicted that blockchain technology, when applied to stock trading, could result in $6 billion in savings globally.

ASX now plans to move forward with stakeholders on finalizing the scope of the system. Details on the system and proposed timing for migration to blockchain technology will be released for market feedback by the end of March 2018.

Image: ASX