There’s a limit to tolerance.
Just ask Helen Lofthouse, the chief executive of ASX Ltd, the company that operates the national stock and securities exchange.
Her job, and the future of the organisation is now under a cloud, after the events of the past week.
On Wednesday, the ASX confused a listed company with a similarly-named foreign owned private equity group that was engaged in a huge takeover.
The mistake resulted in TPG Telecom shares plummeting 5 per cent, wiping $400 million from its market value, even though it had nothing to do with the $645 million takeover of automotive software group Infomedia.
If the original mix-up was bad, the inability of the ASX to rectify the situation turned it into a debacle, as traders pounded TPG Telecom’s stock for hours.
And it’s unlikely to be the last the operator hears from TPG, with the telco understood to be considering its legal options.
“The ASX’s mishandling of a straightforward and easily correctable error resulted in a serious and damaging failure that has negatively impacted TPG Telecom and its shareholders,” a TPG spokesperson said.Competition bombshell hits ASX
As the disaster was unfolding, Treasurer Jim Chalmers was hosting a group of investment heavyweights in Canberra in the lead-up to the Economic Reform Roundtable in a fortnight.
Among those attending was Joe Longo, chair of the Australian Securities and Investment Commission (ASIC), a man whose patience with the ASX long ago reached an end.
Longo dropped a bombshell.
The regulator, he told the meeting, was “in the final stages” of allowing a competitor to enter the market and do away with the ASX’s virtual monopoly over securities trading.
In particular, he told the gathering, it had been in talks with Cboe Australia, the local offshoot of the Chicago-based financial trading giant which already trades ASX-listed securities through its own market.
“Our capital markets are healthy and strong but face intensifying global competition for capital and listings,” he said.
“As superannuation funds grow and investors seek opportunities, our actions will help keep our markets efficient, innovative and attractive, supporting economic growth for all Australians.”
The timing may have been purely coincidental, but the intent had been brewing for years as investor anger and frustration with the ASX reached tipping point.
ASX Ltd, the operator of the ASX, is listed on its own exchange. As the news sank in on Thursday that it may be stripped of its monopoly, ASX shares tanked.
After a near-1 per cent fall on Wednesday as the TPG Telecom disaster unfolded, the stock dived almost 9 per cent on Thursday.
In a statement, chief executive Ms Lofthouse said the ASX “is supportive of competition that contributes to strong and effective capital markets in Australia” and talked up the interest it was receiving from companies considering a listing.
A saga stretching back more than a decade
In 2015, the ASX began scouting for a replacement to the ageing technology it used to settle trades on the exchange.
Two years later, it created global headlines. In a market abuzz with talk of cryptocurrency and its open source ledger system, the ASX announced it would build the world’s first industrial scale blockchain for financial services applications.
The timeline was always ambitious. It was supposed to be online by 2020.
But the project became ever-more complex as fights developed between various information providers about how they would interact with the new system.
Shares do not simply change hands between buyers and sellers — there are share registries, custodians and a host of other players, many of whom became concerned the new system would steal their business.
By the time the fifth delay to the rollout time was announced, it was obvious the project was on the rocks. At the end of 2022, it was canned, forcing the ASX to announce a $250 million write-off.
Brokers and investment houses had spent vast amounts too, replacing their systems to integrate with the blockchain dream that ultimately turned into a blocked drain.
Dominic Stevens, the ASX chief executive who commissioned the project, had left at the start of the year, leaving then chair Damian Roche to clean up the mess and to appoint Accenture to independently review what had gone wrong.
“On behalf of ASX, I apologise for the disruption experienced in relation to the CHESS replacement project over a number of years,” he said at the time.
Private investment shift worries regulators
Given it is such a key component of Australia’s financial infrastructure, the exchange is overseen by ASIC and the Reserve Bank of Australia.
Then-RBA governor Philip Lowe and ASIC’s Joe Longo were both appalled at the ineptitude and made little attempt to disguise their feelings.
“The independent report has found significant gaps and deficiencies in ASX’s program delivery capabilities and that there are significant challenges in the technology design,” Mr Longo said shortly after the Accenture review was released.
“That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory.”Pre-Christmas outage leaves regulator circling
The decision to abandon the new settlement program left the ASX with an even bigger headache.
The patched-up 25-year-old CHESS system was long past its use by date, and the ASX was back to square one on a replacement.
Despite all the talk about using bits and pieces of the abandoned blockchain system, there’s no firm date on a replacement, even after repeated outages that have led to a series of embarrassing shutdowns.
The most recent, and among the worst on record, was on the Friday before Christmas last year when brokers couldn’t settle trades, leading to this outburst from Mr Longo.
“I am very concerned about it. Very disappointed. And from a regulatory perspective, everything is on the table,” he told the Australian Financial Review.
“We went after the ASX twice last year, and you know what? It’s probably going to happen again this year,” he told the Nine publication.
In March, the corporate regulator ASIC and the Reserve Bank issues a joint letter rebuking the exchange operator, describing “deep concerns”.
By June, ASIC had launched a sweeping investigation, citing “ongoing concerns over ASX’s ability to maintain stable, secure and resilient critical market infrastructure”.
“ASIC’s decision to initiate an Inquiry follows repeated and serious failures at ASX,” Mr Longo said in the announcement.
He foreshadowed the regulator’s drive to increase competition.
“ASX is ubiquitous, you simply cannot buy and settle on the Australian public equities and futures markets without relying on ASX and its systems.”
On Thursday, as ASX Ltd’s shares languished on the news of ASIC’s looming approval of Cboe, the company quantified the cost of the regulator’s probe.
It forecast additional operating costs of between $25 million and $35 million in the financial year ahead, as a result of legal and other costs to manage its response.
A timeline of human error in the case of mistaken TPG identity
This week’s embarrassment is understood to have been caused by human error rather than creaking computer technology.
But the error was compounded by poor oversight and a series of management mistakes.
Around 9:20am on Wednesday morning, a little-known technology group Infomedia announced it had accepted a $640 million takeover from an unlisted private equity firm, TPG Capital.
Someone at the ASX linked the announcement to Australia’s third-biggest telecommunications group, TPG Telecom.
While unacceptable, the mistake is understandable.
What happened next was inconceivable. Both TPG Telecom and Infomedia notified the ASX within minutes, offering themselves to correct the record.
The ASX refused, telling both parties it would handle the correction. Not only did it delay any correction, it lifted the trading pause in TPG at 9:47am without any clarification.
When the market opened 10 minutes later, TPG Telecom shares crashed.
TPG executives and staff repeatedly demanded urgent action but the stock trading wasn’t halted until around 10:15am and the announcements remained in place until 11:15am. A formal correction wasn’t issued until 11:31am.
ASX boss Helen Lofthouse has apologised. But she may be too late.