Exchange operator ASX sinks most in 26 years as tech revamp swells costs

By Rajasik Mukherjee and Kumar Tanishk

May 26 (Reuters) - Australian stock exchange operator ASX Ltd (ASXFF) on Tuesday warned of a sharp rise in 2027 spending for technology upgrades and new product developments, sending its shares plunging more than 13% in their worst day in more than two decades and a half.

The rise in investment comes after ASX spent heavily on its CHESS clearing platform despite several outages and a scrapped overhaul, and a recent downgrade of the firm by ratings agency S&P.

"The market is still scarred from the original CHESS failure," said Greg Smith, an investment specialist with New Zealand-based wealth manager Generate KiwiSaver.

In 2022, ASX abandoned its project to upgrade the clearing and settlement software platform with custom blockchain-like technology, after investing hundreds of millions over six years, frustrating market players, regulators and the central bank.

"The failed CHESS replacement damaged credibility badly, so now it's less about strategy slides and more about whether management can actually execute without more delays, outages or cost blowouts," said Smith.

Shares of the bourse operator ended 13.2% lower at A$51.03, marking their worst session since April 2000. The stock was the biggest loser in the benchmark ASX200 index, which ended 0.4% lower.

ASX said its total expenses in 2027 would rise by up to 21% from the previous year, with capital expenditure seen increasing to A$180 million-A$200 million ($128.97 million-$143.30 million) compared with the previous guidance of A$160 million-A$180 million.

In 2028, capital expenditure is expected to be between A$170 million and A$190 million.

Costs are set to increase as ASX upgrades its technology, invests in artificial intelligence, improves internal systems and automation, bears the cost of running older and newer systems at the same time, and meets regulatory requirements.

Australia's securities watchdog found in April a string of blunders, cost overruns and missed timetables for technology upgrades at the stock exchange operator.

The report said the company had prioritised delivering higher shareholder returns and adopted short-term "tactical solutions" to solve problems rather than addressing the cause of its issues.

"Regulators have basically said the issue wasn't just the technology - it was governance, culture and decision-making. Costs are climbing sharply, and investors will only tolerate that if reliability clearly improves," Smith said.

ASX's 2026 total expense growth forecast of up to 23% includes costs associated with the regulatory inquiry.

($1 = 1.3957 Australian dollars)

(Reporting by Rajasik Mukherjee and Kumar Tanishk in Bengaluru; Editing by Subhranshu Sahu)