To complement its suite of reforms to boost the attractiveness of the UK’s capital markets, the Government recognises that work must also be done to maintain a healthy pipeline of ambitious companies which might be contemplating a UK IPO in due course. As part of its Edinburgh Reforms in December 2022, the Chancellor announced that in order to attract promising companies to grow and list in the UK, the Government intends to establish an intermittent trading venue for private companies by the end of 2024.  On 6 March 2024, the Government published its consultation setting out the proposed broad principles for the structure and regulation of this new venue, to be known as PISCES.

What is PISCES?

PISCES is the proposed new ‘Private Intermittent Securities and Capital Exchange System’ which will allow the secondary trading of existing shares in private companies on an intermittent basis in a controlled regulatory environment. PISCES will only operate as a secondary market for the trading of shares. This means that companies will not be able to raise primary funds by issuing new shares to investors and no other securities, such as bonds, will be permitted to trade on the venue.

Who can operate PISCES?

Firms wishing to operate a PISCES platform must have FCA permission to arrange deals in investments, operate a multi-lateral trading facility or an organised trading facility or have a recognised investment exchange. These firms will have to apply to the FCA and once approved, will be able to run intermittent trading events for participating companies. The Government intends that operators should have flexibility on how they run the platform, subject to regulatory requirements.

What is the Government’s objective?

By launching PISCES, the Government seeks to:

• provide opportunities for existing shareholders, including employees, of companies to sell their shares and realise their gains;
• allow companies to rationalise and diversify their shareholder base and enhance their liquidity prior to an IPO;
• provide investors with access to exciting and growing companies and consequently, enhance greater transparency in private markets; and
• act as an effective interface between growing companies and UK public markets. Companies will have exposure to the ecosystem of public markets and will be connected to a wider group of investors, potentially leading to more robust and reliable IPO valuations and a stable post-listing period.

Which companies can trade their shares on PISCES?

Private companies and public limited companies whose shares are not admitted to trading on a public market in the UK or abroad are eligible to participate on PISCES. This includes both UK and international companies. The Government does not envisage placing minimum or maximum size limits on companies but intends to give PISCES operators the discretion to impose admission conditions on applicants, such as requirements relating to corporate governance.

When can shares be traded?

Subject to an operator’s rules, companies will have the flexibility to determine the frequency that their shares could be traded, including the length between trading windows – for example, on a weekly, monthly or biannual basis, and the duration of such a window. Note that timing will also depend on the willingness of shareholders to sell at any given time.

Who can invest in participating companies on PISCES?

The Government proposes that trading is limited to institutional and professional investors – at least during the trial period. Given the lower levels of investor protection, most retail investors will not be permitted to trade, but the Government is considering whether to allow certain categories, such as employees, to buy shares on PISCES, given that they should have a greater understanding of the company. Note that the Government expects existing shareholders including employees to have the opportunity to sell their shares on the platform, subject to conditions in the articles of association or employment agreements.

What is the proposed regulatory framework?

Sandbox trial

The Government intends that PISCES is subject to a proportionate and bespoke regulatory regime which will be developed within the FMI sandbox. The sandbox environment will allow the Government to temporarily modify provisions of the applicable legal framework (including the Companies Act 2006, FSMA 2000 and UK MAR) whilst the regime is tested during the trial period.

Disclosure

PISCES operators will be permitted to establish a ‘private perimeter’ where detailed company disclosures and trade data are only made available to participating eligible investors shortly before and after each trading window.– but will not be publicly disseminated. Such disclosures would be made pursuant to a tailored UK market abuse regime which would only apply from when a company’s disclosures are made available to investors to the end of the trading event. Consequently, companies may share information with investors outside of these windows without being subject to PISCES market abuse requirements. The Government expects that, as a minimum, disclosures will concern inside information, share ownership, senior manager transactions in shares, price parameters and any trading permission restrictions.

What do we think?

It is hoped that PISCES will be an attractive option for domestic and international companies, in a bid to get their ‘shoe in the door’ to a successful listing on the UK’s capital markets. The new venue should bridge the gap between private and public markets allowing not just companies – but also, investors, shareholders and employees, the opportunity to test the ‘public waters’ by being exposed to public markets on a temporary basis. It also provides the company with a practical opportunity to structure its shareholder base on the public markets and have the opportunity to engage with a range of institutional investors as it plans its roadmap for an eventual IPO.

Next steps

Responses to the PISCES consultation are required to be submitted by 17 April 2024. Based on the feedback received, the Government expects to further engage with stakeholders before laying legislation to set up the PISCES sandbox later this year. The FCA also intends to consult on the applications and approvals processes for taking part in the sandbox before it is established at the end of 2024.