electronic trading
March 30, 2024

By -

Rick Solomon


Before the introduction of the Clearing House Electronic Sub-register System (CHESS), trading on the Australian Securities Exchange (ASX) was done through a process involving physical paper-based share certificates and manual record-keeping.

Investors would place buy or sell orders through their stockbroker, either over the phone or in person. These orders would specify the quantity of shares to buy or sell and the desired price.

The stock exchange would match buy and sell orders through an open outcry system or a trading floor. Traders and brokers would physically gather on a trading floor, often referred to as a “pit” or designated area on the exchange floor to execute trades. Market makers and floor brokers facilitated the matching of orders by shouting out bids and offers for specific stocks.

Once a match was found between a buy and sell order, the price negotiation would occur between the brokers representing the buyers and sellers. This process often involved haggling to agree on a price that both parties found acceptable. Once a trade was agreed upon, the details of the transaction were manually recorded by the brokers involved. This included the number of shares traded, the agreed-upon price and the identities of the buyer and seller.


After the trade was confirmed, physical share certificates representing the ownership of the traded securities were exchanged between the buyer’s and seller’s brokers. Settlement typically occurred a few days after the trade date, during which the actual transfer of share ownership and payment took place.

Brokers maintained records of their client’s transactions manually. These records included details of the trades executed, share ownership and other relevant information.

This manual trading and settlement process had several drawbacks, including higher operational risks, longer settlement times, increased potential for errors and limited transparency and regulatory oversight. The introduction of CHESS in the 1990s revolutionized the Australian stock market by replacing physical share certificates with electronic records, streamlining trade execution, improving transparency and reducing settlement times. Looking back, it is hard to over emphasise what a giant leap forward this represented.


After the introduction of CHESS on the ASX, trading processes became significantly more efficient and streamlined.

Investors place buy or sell orders through their stockbrokers via electronic trading platforms. These orders specify the quantity of shares to buy or sell and the desired price.

The ASX’s trading system matches buy and sell orders automatically based on price-time priority. Orders are matched on a central electronic trading platform rather than through open outcry or a physical trading floor. Market participants can also access the market electronically from various locations and time zones, reducing the reliance on a physical trading floor.

Once a match is found between a buy and sell order, the trade is executed electronically at the prevailing market price. The execution process is automated and instantaneous.

bull market

Trade details, including the number of shares traded, the agreed-upon price and the identities of the buyer and seller, are automatically confirmed by the trading system. Both parties receive electronic trade confirmations almost immediately after the trade execution.

Settlement of trades occurs electronically through CHESS. Instead of physical share certificates, share ownership is recorded electronically in the CHESS system. Funds settlement also takes place electronically through the ASX Clearing Corporation.

All trade-related information, including transaction history, share ownership and account balances, is recorded electronically in the CHESS system. Brokers and investors can access their account information and transaction history online through their brokerage accounts.

Overall, the implementation of CHESS has significantly improved the efficiency, transparency, and reliability of trading on the ASX. It has reduced operational risks, shortened settlement times and provided market participants with real-time access to trade and account information.

It has also led to greatly improved real time surveillance activity by regulators resulting legal enforcement proceedings in respect of crimes such as insider trading and market manipulation.

The Future

The future of trading is likely to be shaped by ongoing technological advancements, regulatory changes and evolving market dynamics. While it’s challenging to predict specifics, several trends and developments may influence the future of trading on the ASX and other platforms.

The rapid continued advancements in technology, including artificial intelligence, machine learning, blockchain and cloud computing, are expected to further enhance trading infrastructure, execution speed and data analytics capabilities. This is likely to lead to increased automation, improved risk management, and more sophisticated trading algorithms.

However, as the recently failed ASX chess technology update highlights, this is a very complex and high cost task with a very high risks attaching to it. There is a very real case to be made that global co-operation is essential to the design of any new market place operating system as are robust redundancy fail safe systems. The financial, social and economic consequences of a prolonged marketplace systems failure would be catastrophic. Predicting the likely replacement for Chess is not for the faint hearted.

It is readily accepted that there is growing interest in digital assets and tokenization of assets, including securities, commodities and real estate. Trading platforms may explore opportunities to facilitate trading and settlement of digital assets through regulated platforms, potentially leveraging blockchain technology.

Regulatory bodies are likely to continue monitoring and adapting regulations to address emerging risks, such as market manipulation, cybersecurity threats and high-frequency trading. Regulatory changes may impact trading practices, market structure and investor protection measures.


Platforms are likely to strengthen their connectivity with international markets, allowing investors to access a broader range of assets and trading opportunities. Cross-border collaboration, inter-operability agreements and the integration of trading platforms should aim to facilitate global market access for participants.

Data analytics and surveillance capabilities are crucial for monitoring market activity, detecting anomalies and ensuring market integrity. 

Trading platforms may invest in advanced data analytics tools and machine learning algorithms to enhance market surveillance, detect insider trading and mitigate systemic risks. Overall, the future of trading on platforms is likely to be characterized by ongoing innovation, regulatory evolution and adaptation to changing market dynamics. Embracing technology, promoting market integrity and meeting the evolving needs of investors will be key priorities in the years ahead.

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