The UK chancellor Rachel Reeves used her Mansion House speech last night to announce plans for the introduction of a new ‘Pisces’ regulated market to trade shares in private companies exempt from stamp duty.
Pisces won’t be open to retail investors, unless they are employees of the company issuing the shares, but it could act as a stepping stone for private companies towards an IPO on a public market.
Dan Coatsworth, investment analyst at AJ Bell said: “The proposed new stock market called ‘Pisces’ won’t be like the ones people know today. It’s just for privately-owned companies and while it won’t be open to the general public, there are many positives from its creation.
“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.
Coatsworth continued: “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 parting in a Pisces trading event should be told about company-specific information, but details won’t have to be made public. That’s different to previous proposals under the former Conservative government.
He further said: “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 general 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.
“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.
He concluded: “Pisces is not going to change the world, but it should be a welcome addition to the UK’s investment ecosystem.”
