UK: Government to establish new market to trade private company shares

The government has published its Response, and is largely proceeding with the approach originally set out in the March 2024 consultation undertaken by the previous government, but without the proposed PISCES market abuse regime. Instead, there will be a core set of disclosures to be set out in FCA rules that will provide information to PISCES investors. 

What is PISCES?

PISCES will provide a platform for the intermittent trading of unlisted company shares, providing shareholders in eligible companies with liquidity and a route to exit. Trading windows will take place at defined intervals (for example monthly or quarterly). PISCES will facilitate the trading of existing shares. It is not a capital raising platform, so companies will not be able to use it to raise funds through the issue of new shares. Initially, companies will not be able to carry out share buybacks on PISCES (although the government has indicated it will explore this at a later stage).

Who can trade on PISCES?

PISCES will be open to private and public limited companies (including overseas companies) whose shares are not admitted to trading on a public market in the UK or abroad.

There will be restrictions on the categories of investors that can buy shares on PISCES. Institutional and professional investors (eg pension funds and private equity firms) will be permitted to trade. Retail investor participation will be limited to:

• Self-certified sophisticated investors, certified sophisticated investors and high net worth investors (each as defined in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005); and
• Employees of participant companies and employees of their immediate corporate group whose employment is connected to the participant company’s business.

Persons taking orders to trade will be responsible for checking investors are eligible.

Who will operate PISCES?

PISCES will initially be established using the Financial Markets Infrastructure Sandbox under powers granted by the Financial Services and Markets Act 2023. This allows participants to benefit from temporary modifications to relevant legal and regulatory requirements. The operation of PISCES will be subject to its own regulatory requirements within the PISCES sandbox. Regulated firms and Recognised Investment Exchanges that wish to run a PISCES platform will require specific authorisation from the FCA.

The FCA will consult separately on the detailed requirements that will apply to PISCES operators.

PISCES operators will determine any admission requirements for their markets, including any minimum corporate governance requirements.

Market abuse and disclosure

In a departure from the consultation, there will not be a public market style market abuse regime. Consultation feedback highlighted the original proposals here as leading to additional costs and acting as a barrier to participation. Instead, the government will give the FCA rule-making powers to create a new and bespoke disclosure regime for PISCES, taking into account market feedback. Under this regime, disclosures will have to be shared with all investors participating in a PISCES trading event. However, participant companies will not be required to identify or disclose all ‘inside information’ in the manner required on public markets.

There will be further FCA consultation on the proposed disclosure regime, including on how PISCES operators can play a more central role in preventing and detecting manipulative behaviours on their platforms and how concerns on market conduct can be raised with the FCA. The FCA will also consult on detailed requirements related to pre-and post-trade transparency requirements for PISCES. 

As there will be no general market abuse regime, in another change from the consultation, there will not be a transaction reporting regime. The FCA will consult on the appropriateness of record keeping requirements for orders and transactions on PISCES.

Recognising that private companies are taking on new disclosure obligations, the government intends to introduce a PISCES disclosure liability regime, which applies a stricter ‘negligence’ liability standard to information which is more certain, such as past financial information, while applying a more lenient ‘recklessness’ standard to information that is less certain, such as forward-looking information.

What else do companies need to know?

For shares to be traded on PISCES, they will have to be freely transferable at the time of a PISCES trading event, so, for example companies would need to make appropriate amendments to their articles of association to allow PISCES transfers.

As announced in the Autumn Budget, the government will exempt PISCES transactions from stamp duty and stamp duty reserve tax. The Takeover Code will not apply to a company solely by reason of its shares being traded on a PISCES platform.

Next steps and impact

Alongside the consultation response, HM Treasury has also published a draft statutory instrument and accompanying policy note (available here). Technical comments on the draft legislation should be submitted by 9 January 2025.

The Treasury intends to introduce the PISCES legislation by May 2025.

As indicated in the Response statement, there are a number of areas where the FCA needs to set out the applicable rules both for market operators and participants, and this will be the subject of further consultation.

Once established, the PISCES sandbox will operate for an initial period of five years.

The government intends PISCES to be an intermediate step to listing on public capital markets that will support the pipeline for future IPOs in the UK.

The PISCES model is intended to improve later-stage liquidity for private company shareholders. PISCES is likely to be attractive to business angel and venture capital-backed companies, as well as companies with a large employee shareholder base.

From a VC sector perspective, this is an interesting intervention given that the relative illiquidity of private company investments is a hot topic right now. The reduction in M&A activity last year has meant that VC investors and business angels have not been able to exit positions, and in turn this means that there is less capital being deployed in terms of new investments.

The challenge will be that the institutional and professional investors that this may be aimed at will normally want to negotiate (or at least be provided with) some bespoke protections, for example, information rights and consent rights, and board or observer positions. Whilst the platform may help in the origination of small secondary transfers, more significant deals may still remain in the private market given the governance arrangements within private companies and the fact that one size is unlikely to fit all.

Further reading

Government response: Private Intermittent Securities and Capital Exchange System (PISCES)

Government webpage

Briefing: UK Government consults on new platform for trading private company shares (March 2024)