Australia's Central Bank Tells ASX to Fix Stock Settlement System

The Australian Securities Exchange (ASX) was told on Wednesday that it must undertake major changes to its governance and risk management by the country’s central bank.

The Reserve Bank of Australia said ASX’s clearing and settlement units still fall short of key regulatory standards and it needs to make “foundational changes” to its culture and risk management following a trading settlement failure last year.

The central bank, which has oversight of the clearing and settlement systems, said in a statement following its investigation into the settlement failures that it would monitor progress closely and would consider further regulatory responses if ASX did not improve.

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The RBA’s criticism underscores the growing regulatory pressure on ASX, by far Australia’s biggest equity market operator, to ensure the stability of essential financial systems.

“ASX is not currently meeting the regulators’ expectations for an operator of critical national infrastructure,” RBA Assistant Governor (Financial System) Brad Jones said.

“Resilient and secure clearing and settlement facilities are crucial to the stability of the Australian financial system.”

ASX needed to improve its risk transformation plan and conduct a review of its business continuity and contingency arrangements in its clearing and settlement division, the RBA said.

The ASX handled an average of 2.56 million equity trades over 21 trading days in August, according to Reuters calculations based on exchange data. The average daily cash market trading value in the ASX’s past financial year was A$6.1 billion ($4.04 billion), the company’s full-year results showed.

ASX shares fall

ASX shares were 0.8% lower when the RBA’s statement was published and fell further afterward, ending the day down 1.17%. The overall S&P/ASX200 declined 0.9%.

The ASX came under fire in December after deferring a day’s worth of trading settlements following a breakdown in its Clearing House Electronic Subregister System (CHESS).

“We are acutely aware ASX must accelerate our progress to rebuild trust with our regulators, particularly following the disappointing incidents of the past year,” ASX chief executive Helen Lofthouse said in a statement.

Lofthouse said ASX is focused on contingency arrangements for CHESS and has completed some code fixes and memory increases to improve its resiliency.

In June, the Australian Securities and Investments Commission appointed an expert panel to investigate ASX’s governance and risk management practices, which is due to deliver its findings by March.

The aging all-in-one CHESS system usually settles a trade two business days after a buyer and seller agree to the trade by arranging for money transfers.

Along with settlements, CHESS electronically registers the ownership of shares on its subregister.

ASX had been looking to replace the CHESS software using blockchain-based technology, but abandoned the overhaul in November 2022, six years after announcing it, citing concerns about the product’s complexity and scalability.

‘Regulatory maze’

Meanwhile, the collapse of a high-profile takeover bid for Santos, Australia’s second-biggest gas producer, has put a negative spotlight on Australia’s regulatory environment.

Nearly $40 billion worth of big-ticket buyouts have collapsed in Australia this year – the most in 15 years – as regulatory risk and misaligned valuations add to the growing challenges in navigating an increasingly stringent regulatory environment.

The decision last week by an Abu Dhabi consortium led by ADNOC to walk away from its $18.7 billion bid for Santos is the latest in a string of high-profile deals to collapse in Australia this year.

The ADNOC-bid, through its investment vehicle XRG, was shelved as the parties disagreed on potential capital gains tax liability related to a Santos asset, Reuters reported last week citing sources.

The deal was also likely to have faced difficulty being approved by Australia’s Foreign Investment Review Board (FIRB), analysts said. Including Santos’s net debt, the bid was the largest all-cash offer in Australian history.

Its collapse has pushed the value of failed deals to the highest point since 2010, according to LSEG data, raising questions about the feasibility of large-scale transactions in Australia.

Long approval process

A lengthy approval process, taking into account reviews by the Australian Competition and Consumer Commission (ACCC), FIRB and other government agencies, is making deals down under harder to execute, advisers said.

“Public equity markets remain at record highs, with both debt and equity funding readily available, which should normally be driving a strong wave of M&A activity,” said Garren Cronin, a managing director at Cadence Advisory, a boutique firm.

But he said factors such as technological change creating disruption in multiple industries, and new ACCC rules effective from January 1 that make regulatory pre-approval mandatory for most deals, had made conditions for deal-making tougher.

“Regulatory overreach, particularly from the ACCC, has created a maze of uncertainty,” Cronin said. “The ACCC’s successful push for a mandatory approval process … has added a material burden to deal activity.”

Under previous rules, companies could voluntarily seek ACCC approval to reduce the risk of the regulator intervening and taking enforcement action on deals it thought were anti-competitive.

A spokesperson for ACCC said the new regime “seeks to strike the right balance between seeing and preventing anti-competitive acquisitions,” while allowing those that are unlikely to raise competition issues to proceed with certainty.

“This includes provision for low-impact acquisitions to seek a waiver that removes the obligation to notify.”

Advisers, however, said that longer timelines for completing the regulatory processes and finalising big-ticket transactions are increasing the risk for the deals.

“Time kills deals, whether it’s a private M&A or public M&A, losing momentum is definitely a trend of the current M&A environment,” said Lance Sacks, a corporate partner at Baker McKenzie.

“There’s still this valuation gap. Funding is readily available, but it’s got to make sense. Buyers and (corporate) boards are a lot more considered, a lot more diligent, and a lot more cautious before they pull the trigger.”

In August, Peabody Energy pulled its $3.8-billion bid for Anglo’s Queensland coal assets, while Brookfield and Bain walked away from $2.5 billion bids for Insignia Financial earlier in 2025.

The Australian financial services group in July signed a $2.2-billion buyout agreement with New York-based CC Capital.

KWM practice leader for M&A David Eliakim said some bidders considering complicated deals were attempting to pre-empt future regulatory issues that could stem from the FIRB, ACCC or tax authorities.

“That has resulted in some harder issues being confronted and debated before bid documents are formally signed, creating more stress and tension than might otherwise be the case, which in turn impacts whether transactions are executed.”