Australia probes ASX on possible breaches of disclosure rules

By Byron Kaye

SYDNEY (Reuters) -Australia's corporate regulator said it was investigating possible breaches of disclosure rules at share market operator ASX Ltd over a troubled rebuild of its trading software, potentially exposing the stock exchange to criminal prosecution.

The investigation into the world's No. 15 stock exchange marks an escalation in the backlash that has rocked ASX since it pulled a blockchain-based overhaul of its trading, clearing and settlement system last November despite years of assurances the project was on track.

The Australian Securities and Investments Commission (ASIC) and Reserve Bank of Australia had already publicly rebuked the exchange and demanded more thorough reporting on plans to update the 30-year-old software at the heart of the economy. The federal government said it wants to break up ASX's monopoly over clearing and settlement.

Now, ASIC is investigating "suspected contraventions" of laws around continuous disclosure of market-sensitive information, misleading or deceptive conduct, and exercising duties responsibly, ASX said in a statement.

The exchange "takes its obligations very seriously and will cooperate fully with ASIC", the statement added.

ASIC confirmed the investigation referred to in ASX's announcement but declined further comment. ASX did not say whether the regulator was investigating individuals or whether it was considering criminal or civil court proceedings. It declined to comment beyond its statement.

Under Australian corporate law, companies can face fines of up to A$10.5 million ($7 million) for misleading disclosures, while company directors can face prison sentences of up to 15 years and fines of up to A$1.1 million, according to the ASIC website.

"No one would suggest this is anything other than a very significant development, because of the position of ASX in the economy and also the fact that it's clearly a wide-ranging investigation and possible penalties can be significant," said Ian Ramsay, director of University of Melbourne's Centre for Corporate Law and Securities Regulation.

Jason Harris, a professor of corporate law at Sydney University, said ASIC might pursue a criminal case against ASX directors but it typically resolved cases involving breaches of continuous disclosure rules with fines.

The ASIC investigation covered ASX directors' actions from Oct. 28, 2020 to March 28, 2022, ASX's statement said. On the first date, ASX gave a "go-live" date of April 2023 for the blockchain-based overhaul; on the second date, the exchange said the project was delayed but progressing well.

ASX's chairman and CEO during that period have since left, while the CEO since August 2022, Helen Lofthouse, worked at the company during that period but was not on the board. On Wednesday, Lofthouse called a virtual all-staff meeting and told the company's 760 employees to remain focused on their work, a person with knowledge of the situation told Reuters.

ASX's current chairman, Damian Roche, has been a director since 2014.

($1 = 1.4943 Australian dollars)

(Reporting by Byron Kaye; additional reporting by Harish Sridharan in Bengaluru; Editing by Devika Syamnath, Shri Navaratnam and Jamie Freed)