Trading of shares in private companies is set for a boost from the implementation of final rules for the Private Intermittent Securities and Capital Exchange System (PISCES), confirmed by the Financial Conduct Authority.
The regulator outlined platform delivery will be through a sandbox, allowing it to test the design before finalising a permanent regime in 2030.
The sandbox is now open, with shares likely to be traded later this year. Trading systems could include periodic auctions, as well as occasional and time-limited periods of continuous trading.
The FCA stated that PISCES will be developed using the “financial markets infrastructure (FMI) sandbox” - the second time this framework has been used Digital Securities Sandbox.
PISCES is a new type of platform where shares in private companies can be traded. The regulator stated "It will open the door to more opportunities for investors, facilitating their access to growth companies. Private companies can tap into a broader range of investors and asset managers and PISCES offers exits for shareholders to sell up."
The concept is intended to make it easier for private companies to access capital investment and liquidity.
Access to PISCES will be limited to institutional investors, high-net-worth individuals, sophisticated investors and employees of participating companies. Investors will be provided with information about the risks involved to help them make informed decisions, the FCA notes.
Simon Walls, Executive Director of Markets at the FCA, said: "This bold design rebalances risk, but it is bold risk taking that made the UK the leading financial centre it is today. The new platforms will give investors greater access and confidence to invest in exciting new companies, while early backers and employees can sell up and invest again. PISCES is the latest step in the FCA’s wide-ranging reforms to the UK’s markets to boost growth and competitiveness."
Emma Reynolds, Economic Secretary to the Treasury, said: "PISCES is a great example of industry, regulators and the government working together to go further and faster on innovative reforms to strengthen UK capital markets, supporting economic growth and putting more money in people’s pocket as part of our Plan for Change."
"I welcome the FCA's announcement, which follows our legislation and opens PISCES to industry. This also builds on our announcements on a Stamp Taxes on Shares exemption for PISCES transactions, and on employees retaining the tax advantages on eligible shares traded."
Responses
Commenting on the news, Dan Coatsworth, Investment Analyst at AJ Bell, said: "PISCES could help private companies get used to the idea of slices of their business being owned by different people. It might act as a stepping stone towards a public stock listing, getting them used to regular financial reporting, transparency as a business, and understanding that a company is run for the best interests of shareholders, not the board of directors."
"It could also encourage their staff to develop a saving and investing habit. One of the biggest stumbling blocks for private company share ownership is that staff are often put off by the general inability to sell those shares at regular intervals. A lot of private companies won’t offer the ability for staff to trade shares, meaning some people are stuck owning the equity until the business either lists on a public market or there is an internal event where they can sell down.
"In theory, PISCES could improve liquidity by allowing private company shares to be traded at more regular intervals. However, it has only been designed for intermittent trading, not the continuous trading during market hours that you get with publicly listed stocks. Such restrictions would give a company control over when changes in share ownership can happen.
"Disclosure requirements will be different to public markets in that investors taking part in a PISCES trading event should be told about company-specific information, but details won’t have to be made public. Lower levels of disclosure make PISCES-traded shares higher risk than ones available on London’s Main or AIM markets."
"Pisces is not replacing an established stock market like AIM as it will not support capital raising and it won’t be open to the public. It is purely a secondary trading market and there will be restrictions on who can buy and sell. Apart from employees of the private company, only institutional investors, high net worth individuals or those deemed to be ‘sophisticated’ investors will be able to buy and sell via Pisces. Share buybacks will not be permitted, at least in the initial stages of the market’s life.
"These factors are important as they mean PISCES and AIM will not be direct rivals. The launch of Pisces does not sound the death knell for AIM. If anything, it could shine on a spotlight on AIM’s advantages in letting companies access capital markets for growth funding and the ability to conduct share buybacks, the latter treasured by many investors in the current environment. AIM is seen as a stepping stone for London’s Main Market – and now that journey could start earlier, with Pisces the stepping stone for AIM.
"PISCES won’t play an immediate role in the government’s plan to foster a culture of investing in the UK. However, anything that encourages more companies to think about broadening their investor base and potentially resulting in an IPO down the line is good for the future of the UK stock market.
"The government and the London Stock Exchange need all the help they can get to revive the UK stock market given the constant trickle of companies shifting their main listing to the US or being taken over. Time is running out to resolve this problem and Pisces could be a slow burner in terms of driving up volumes of companies seeking to get involved. We need a solution now, not later. Fundamentally, the UK stock market’s revival is dependent on larger firms choosing it as a venue to list their shares, not small ones.
"The proposal to make PISCES share transactions exempt from stamp duty and stamp duty reserve tax puts it in line with similar exemptions for AIM and the Aquis growth market. However, it’s a crying shame that the government hasn’t extended this status to all UK shares.
"The government is on a mission not only to encourage more people to invest in UK shares but also attract more investment from overseas. Removing stamp duty on all UK shares would be a major step forward as the current rules make the UK less competitive than many other locations such as the US and some European markets. Stamp duty is a cost for investors and can add up for those who place a lot of trades.
"Pisces is not going to change the world, but it should be a welcome addition to the UK’s investment ecosystem."
Susannah Streeter, Head of Money and Markets, Hargreaves Lansdown, responded thus: "The establishment of the PICSES exchange is part of the government’s drive to put a rocket under Britain’s capital markets and support more scale up companies. PISCES aims to help turn minnows into much bigger fish, supporting the London market overall. This new type of trading platform will enable intermittent trading of private company shares using market infrastructure."
"It’s clear that the London Stock Exchange wants a slice of the private market and is keen on supporting founders wanting to scale up without some of the pressure public markets can impose, with numbers scrutinised every quarter. The PICSES could help create a more free-flowing pipeline for IPOs in the City and it could also help with price discovery for valuations. It comes as the City is struggling to attract and retain listed companies, so the hope will be that this will offer greater support for home-grown start-ups and scale ups.
"The plan is for companies which offer sharesave schemes for employees to get involved, enabling staff of participating firms to sell their stakes through the exchange. There is potential for PISCES to support greater retail access in the longer term to allow for retail clients to sell shares they hold in other private companies. Although this won’t happen quickly, with a time frame of 5 years or more, it could provide an opportunity to level the playing field between retail investors and institutional investors."
