ASX Limited is building a blockchain and is confident the technology could herald near real-time settlement of equities trades and lower costs. 
The ASX said on Friday morning it had taken a 5 per cent equity interest in Digital Asset Holdings, a blockchain start-up run by Blythe Masters, who as an executive at JP Morgan has been credited with creating the modern credit default swap. 
"The work we have done with ASX to date indicates that Australia has a unique opportunity to be a world leader in the adoption of distributed ledger technology," Ms Masters said in a statement. 
A blockchain, also described as a distributed ledger, is a secure network of computers which continuously maintain the records without intervention from an outside third party.
The ASX's blockchain will be a private network. It is envisaged its members will be the same trading firms who currently plug into the CHESS system.
The ASX said CHESS will continue to operate as normal during the trial work with Digital Asset Holdings. It said it would make a decision in 2017 as to whether the technology would ultimately be adopted and rolled out into the market. 
ASX said it and Digital Assets will engage with regulators and government agencies "to assess the benefits that a new solution could deliver to them". 
The ASX's announcement comes just a day after Commonwealth Bank of Australia completed a successful test with ten other global banks using a blockchain for trading with each other, part of a project being coordinated by R3 CEV. CBA has also built its own blockchain in its innovation lab. In   December, CBA CIO David Whiteing identified share trading as one of the attractive use uses for distributed ledger technology . 
Elmer Funke Kupper, the ASX's chief executive, said on Friday there had been very little innovation in post-trade equity services for the past 20 years. 
"Rather than replace CHESS with a new version that is based on the same legacy processes that operate in the market today, we should aim to re-engineer and simplify those processes to deliver significant benefits to the users of the market," he said in a statement. 
"The initial phase of work is designed to bring the benefits to life and to test if distributed ledger technology can work at the scale of the Australian equity market.
"By building a solution alongside the existing CHESS system, all stakeholders can participate fully in the innovation process and have confidence in the clearing and settlement processes that underpin one of the top ten equity markets in the world."
ASX said the technology could result in near real time settlement of trades while also reducing risk and slicing back-office administration and compliance costs. 
Twelve other global financial services companies had also made investments in Digital Assets. ASX paid $14.9 million million for its 5 per cent stake in Digital Asset Holding. 
Other stock exchanges are moving forward with adopting blockchain. For example, Nasdaq launched its Nasdaq Linq blockchain in   November last year, which is being used to settle some private trades. 
For regulators, blockchain technology offers full transparency into trading systems.