The Government is pushing forward with its plans to introduce PISCES next year and has published draft legislation with substantive changes to the previously published proposals. Excitingly, the revised proposals go materially further than the March 2024 consultation and we expect will make the platform much more attractive.
What is PISCES?
PISCES stands for “Private Intermittent Securities and Capital Exchange System”. It is a proposed new regulated market for private company shares, in the form of a trading platform that allows for the intermittent trading of such shares.
Following initial discussions in 2021, the concept of PISCES was introduced in December 2022, followed by an initial proposal in July 2023 and a full consultation in March 2024. We previously published an article with 10 key points from that consultation (which can be accessed here).
Chancellor Rachel Reeves recently confirmed in her November Mansion House speech that the Government is pushing ahead with PISCES and intends to legislate for it in the spring of 2025. Draft legislation has since been published, alongside responses to the consultation and a policy note. With relevant industry bodies, including the FCA and the London Stock Exchange, taking a keen interest, it is full steam ahead for PISCES.
Aims and aspirations for PISCES
Public and private companies currently exist in their respective silos with very limited interaction. A private company wishing to convert into a public company and achieve a listing will need to make major (and permanent) changes to its set up and commit to an ongoing burdensome compliance regime.
PISCES is intended to provide liquidity to shareholders of private companies through periodic trading events, using the infrastructure of a trading platform (such as the London Stock Exchange), but without the level of disclosure and other compliance obligations that listed companies are subject to.
Unlike other types of regimes for private companies in other jurisdictions (such as the Nasdaq Private Market (NPM)), PISCES will be company led, rather than investor led. Companies will have flexibility to choose trading windows, trading frequency, pricing bands, types of investors from the permitted categories (e.g. excluding competitors) etc.
It is hoped that, by getting the balance right, PISCES may act as a stepping stone for companies that aim for listed status in the future.
PISCES is likely to be of particular interest to the following types of companies
- profit making companies that have completed their series A and series B rounds but (for whatever reason) are not currently looking to IPO or exit
- companies looking to rationalise their cap table following early-stage investment rounds and/or to facilitate early investors realising value from their investments
- companies operating employee share arrangements and/or looking to provide liquidity to management shareholders
- VCs looking to invest in the knowledge there may be an opportunity to realise value outside a full exit.
Key features of PISCES
As per current proposals (which differ from the March 2024 consultation in a number of ways), PISCES will have the following key features:
- PISCES will operate as a secondary market, facilitating the trading of existing shares in intermittent trading windows. It will not facilitate capital raising through the issuance of new shares.
- Only shares in companies whose shares are not admitted to trading on a public market (in the UK or abroad) can be traded on PISCES. Participation is not limited to UK companies; however, PISCES operators may determine admission requirements such as minimum corporate governance standards.
- Only the following categories of investors will be eligible for acquiring shares on PISCES: institutional investors, employees of participating companies, and investors who can meet the definition of high net-worth individuals and self-certified or certified sophisticated investors under the Financial Promotion Order (FPO). Helpfully, this is broader than the March 2024 consultation where the expectation was that only institutional investors would be able to participate.
- Following feedback from the consultation, the PISCES regime will not include a public market style market abuse regime as this was considered too onerous for participating companies and a major roadblock to achieving a meaningful uptake. Instead, there will be a bespoke disclosure regime with transparency for participating investors before and after the relevant trading event, but without a requirement for public disclosures. This is a major change from the original proposal.
- As there will be no market abuse regime, there will also not be transaction reporting requirements for PISCES. Instead, the FCA will look at setting record keeping rules to facilitate their supervision of the market. Again, this is a change from the original proposal.
- There will be a new FPO exemption to cover PISCES disclosures, based on the exemptions available for promotions included in mandated public market disclosures.
- PISCES operators will be able to decide whether or not shares must be recorded into a Central Securities Depository (CSD).
- Companies will not be able to carry out buybacks on PISCES. However, it will be explored whether to allow this at a later stage, following the initial launch of the PISCES sandbox.
- Transfers of shares on PISCES will be exempt from stamp duty and SDRT, mirroring a similar exemption for shares traded on growth markets such as AIM.
There are a number of points and areas that will require further consideration, such as valuation and how PISCES will interact with tax advantaged share incentive plans (such as EMI plans). HMRC announced in a recent employment-related securities bulletin (November 2024) that they will be seeking input from stakeholders for preparing guidance on these matters.
Next steps
The Treasury is seeking technical feedback on the draft legislation by 9 January 2025. Subject to such feedback, the Treasury intends to introduce the PISCES legislation by May 2025.
The FCA will separately consult on its proposed rules for supervising PISCES, any PISCES platforms and the participating companies and investors.
PISCES will initially be set up in a sandbox overseen by the FCA. Over the five-year sandbox period, firms wishing to run a PISCES platform will need to seek approval from the FCA. One of the first operators of a PISCES platform will be the London Stock Exchange.
Following the sandbox period, the Government will decide how to legislate to make PISCES a permanent feature of the UK regulatory regime if PISCES is considered successful.
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our Privacy Notice.