ASIC confirms investigation into ASX trading failure as outrage mounts – The Australian Financial Review

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ASIC to investigate ASX meltdown

Pressure is mounting for the ASX to reveal what went wrong when the exchange failed on Monday as federal Treasurer Scott Morrison and David Murray, the former head of the government’s financial system inquiry, underscored their frustration with the outage.

Normal trading was restored on Tuesday after a hardware failure one day earlier forced the early close of business. The ASX will hold a forum next week to discuss the impact of the outage, how it communicated with the market, and “preventative actions”.

A critical question that the ASX has so far declined to address is whether it drew on the disaster recovery site at Bondi Junction, the backup for when there is a loss of connectivity at the primary site. That would be answered in its incident report due later this week, the ASX said.

“It was a very serious issue [Monday] and ASIC will be investigating,” Mr Morrison told 2GB radio. “They’ll be doing that review and they’ll be reporting back to me on this issue. This was a very unfortunate incident.

Newly appointed ASX boss Dominic Stevens returns to his office on Wednesday, having been overseas on the day of the outage.
Newly appointed ASX boss Dominic Stevens returns to his office on Wednesday, having been overseas on the day of the outage.

Ben Rushton

 “But it’s been five years I understand since something like that has happened with the ASX.”

It is the most serious failure in the ASX’s systems since its outage of October 27, 2011, which coincided with an options expiry day.

“Regardless of that, these things need to be avoided and we need to determine what caused it,” the Treasurer said.

Meanwhile, Mr Murray said the ASX should be concerned about Monday’s outage, which would increase focus on the adequacy of the exchange’s backup systems. 

“If I was the ASX, I would be extremely concerned, because people rely so much on that system for market integrity,” Mr Murray said in Sydney. “And people, as they are entitled to, can trade intraday or every few years. If they want to, they need to be sure it is there.

“So if I was in the ASX, I would be concerned and would want to see what I can do to fix my backup systems.”

The lapse is the biggest challenge yet for new ASX chief executive Dominic Stevens, who returns to Bridge Street on Wednesday. He was travelling when the incident occurred, but maintained contact with clients, a spokesman confirmed.

Shares of ASX Ltd added 1¢ to $47.79 on Tuesday.

The ASX’s activities are overseen by the Australian Securities and Investments Commission, which said in a statement: “We will examine the cause and any effects of yesterday as a priority and as part of our close oversight of market operators.” ASIC continued, “We are concerned any time there is an incident like this on any of our securities markets, as of course are the users of those markets.

“They have a legitimate expectation that Australia’s securities markets perform to the highest standards.”

That was echoed by the comments of Andrew Green, CEO of The Stockbrokers Association of Australia. “As an industry our members suffered with the outage and they’re asking how this can happen in this day and age, and we, as the industry body, share that frustration,” he said.

Dialogue Consulting director and founder of social media scheduling start-up Schedugram, Hugh Stephens, suggested the ASX did not have a viable crisis plan. “The ASX clearly didn’t have an appropriate system in place for disaster recovery, nor the level of redundancy in its system that is expected of most modern companies that rely on technology to operate,” he said.

“A company like the ASX would normally have systems in place to be able to seamlessly and transparently ‘fail over’ to a backup system in the case of any kind of hardware failure.”

But stock exchanges were complicated, so the transition to a backup might not happen in a matter of minutes. “However, it shouldn’t result in almost a full day of outages, even if you needed to change everything over to a different data centre altogether.”

The nature of its communication with the market was perceived as inadequate, he said. “Clear communication makes a major difference to how a crisis like this is handled, and it seems that the ASX lacked the tools, people or internal communications necessary to keep traders and the general public informed throughout the issues it faced.”

The market opened 90 minutes late on Monday with trading restricted to certain groups, rather than across the board. This staggered open meant some sections of the market were trading while others were inaccessible. However, by 3.30pm the exchange closed the market entirely, leaving investors wondering whether their orders had been filled or not. 

On Tuesday, participants were told confirmed transactions from Monday’s session had been invalidated by the ASX if they applied to so-called “partition 2 securities” within a specified interval of time. 

Before being appointed as CEO in August, Mr Stevens had been on the board of the ASX since 2013. He earns $2 million a year and is entitled to a further $2 million as a short-term bonus dependent on “financial and non-financial performance of the group”. That does not, however, include long-term incentive payments, which are determined by earnings and shareholder returns. 

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