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What is CHESS Replacement?  

CHESS is the electronic system used by the ASX to clear and settle trades in Australia’s equity markets. In December 2017, the ASX announced that the current CHESS clearing system would be replaced by the “CHESS Replacement”, a distributed ledger technology (DLT) based system. This change is set to be implemented in April 2023.

CHESS Replacement will upgrade critical market infrastructure to allow for increased efficiency and deliver new functionality.

How will CHESS Replacement impact listed companies?

The introduction of CHESS Replacement will provide listed companies access to new features such as improved processing for corporate actions and the potential to reduce costs for equity issuers. It is also expected to encourage developers to build microservices for listed companies, allowing for the creation of better voting applications for shareholders.

What should listed companies do to prepare?

In readiness for the CHESS Replacement, listed companies are encouraged to review and amend relevant provisions of their Constitutions, policies and other documents to accommodate and comply with the systems’ new capabilities.

Changes to Company Constitution

1. Joint Holder Clause

The current CHESS system allows for up to three (3) joint holders of a security to be registered. As such, many Constitutions are likely to expressly limit the number of registered joint holders to 3. However, given the CHESS Replacement will allow for up to four (4) joint holders of a security to be registered, listed companies may require a formal amendment to the Constitution in order to take advantage of this change.

2. Definitions Clause

Listed companies may be required to amend the definitions for certain terms in the Constitution including, but not limited to the terms “CHESS System”, “CHESS Approved Securities” and “ASX Settlement Operating Rules”.

3. Additional Clause

Listed companies may also consider taking steps to amend their Constitution or any relevant trust deeds for an enhanced feature in CHESS Replacement.

Changes to Plan Rules 

Listed companies with a Dividend/Distribution Reinvestment Plan and/or Bonus Share Plan may be required to make amendments to their plan rules to allow for a new holder election channel via CHESS. Where applicable, appropriate amendments may include:

• Adding a provision ensuring that elections received via CHESS replacement are recognised as valid under the plan rules; and/or
• Introducing a provision outlining the requirements for making amendments to plan rules, for example, notification by market announcement or other notification to participating security holders.

Other actions

As the ASX will provide an electronic delivery option to investors for CHESS Holdings Statements, listed companies may benefit from consulting with their Share Registry to confirm the process whereby an investor elects, via ASX, to receive electronic communications from the issuer in place of the conventional hardy copy postal communications.

How can Automic Group assist your company?  

With its market-leading share registry technology and highly skilled legal and company secretarial teams, Automic Group is able to advise on and assist in the streamlined preparation and implementation of changes to maximise the benefits of the CHESS Replacement for listed companies. For any advice and assistance concerning the CHESS Replacement, please do not hesitate to contact  us.

For further information about Automic Group’s advanced cloud-based share registry technology, compliance and governance solutions and range of professional services, please contact us here.