PISCES: A new share trading platform for “private” companies

The UK Government has published a consultation on its innovative proposals for a new type of multilateral trading venue that will allow private and unquoted public companies to trade their securities on an intermittent basis.

The proposed regulatory framework, to be known as the Private Intermittent Securities and Capital Exchange System (PISCES), will facilitate the secondary trading of shares in any company whose shares are not already admitted to trading on a public market.

PISCES was first discussed in December 2022 as part of the Government’s “Edinburgh Reforms”, which are intended to drive growth and competitiveness in the financial services sector. PISCES is expected to support the pipeline for future IPOs in the UK by improving the interface between private companies and UK public markets. It is also intended to complement the Government’s wide ranging and ongoing reforms to boost the UK as a listing destination.

What is PISCES?

PISCES will provide a new regulatory framework for the intermittent secondary trading of shares in unquoted companies. It is not a trading venue in itself, but firms will be able to apply to the Financial Conduct Authority (FCA) to operate a trading platform within the PISCES framework.

Although a PISCES trading venue will be a multilateral system, it will not fall within any of the current categories of regulated trading venue – i.e. regulated market, multilateral trading facility (MTF) or organised trading facility (OTF). Instead, it will form a new standalone category that combines elements from the public markets, such as multilateral trading, with elements from the private markets, such as greater discretion on what company disclosures should be made public.

PISCES will be subject to its own bespoke and proportionate regulatory regime that will require changes to existing UK securities law and regulation. The Government intends to develop the new regulatory requirements within a financial services “sandbox”. The sandbox environment will allow the regulatory framework to be tested during a trial period before becoming permanent. The duration of the trial period has yet to be decided.

Why is PISCES being developed?

Under current UK legislation, there are limited options for the shareholders of unquoted companies to sell their shares. Private companies are prohibited from admitting their shares to trading on public markets (such as the Main Market of the London Stock Exchange or AIM) and although public companies are able to access these markets, they would need to comply with a considerable amount of regulation to do so.

PISCES is intended to help bridge the gap between private and public markets by providing a standardised, but more lightly regulated, mechanism for shareholders of unquoted companies to sell their shares. The Government believes that participation on PISCES will:

• help companies to scale up and grow;
• help shareholders (including employee shareholders) to realise their gains;
• provide an opportunity to companies to rationalise their shareholder base by providing an exit route for early investors; and
• provide better access for investors to companies that are not yet operating on public markets whilst ensuring that those investors benefit from greater transparency and efficiency than would be available in private markets.

Which companies can use PISCES?

PISCES will allow the trading of existing shares in any company whose shares are not already admitted to trading on a public market (whether in the UK or overseas.) That would include both UK-incorporated private and public limited companies, as well as overseas companies.

The Government is not currently intending to impose any admission requirements (such as minimum or maximum market capitalisation) on companies wishing to use PISCES. However, the individual operators of PISCES platforms may choose to impose their own requirements as a condition of admission. These could include, for example, minimum corporate governance requirements.

Which shares can be traded on PISCES?

PISCES platforms will operate as secondary markets and so will facilitate the sale of existing shares. They will not be used to facilitate capital raising through the issuance of new shares.

To be eligible for trading within PISCES, shares must be freely transferrable and cannot be admitted to trading elsewhere. Companies will need to review their constitutional documents (and other contractual arrangements) to ensure that they do not impose restrictions on share transfers. The trading of multiple share classes issued by a participating company will be permitted.

Securities other than shares (such as debt securities and depositary receipts) will not be eligible for trading in PISCES, and the Government is not currently proposing to allow share buybacks to be carried out on a PISCES platform.

Who can trade on PISCES?

All shareholders of eligible companies will be able to sell their shares via Pisces. This should result in greater liquidity for those shareholders and enable them to realise their gains without waiting for an IPO or a sale of the company.

There will, however, be restrictions on the categories of investors that can buy shares on PISCES. The Government considers that during the trial sandbox phase, it may be appropriate for only institutional and professional investors (such as pension funds and private equity firms) to be able to buy shares. This is due to the PISCES regulatory framework still being developed and due to the different risk profile of the shares being traded.

Subject to consultation feedback, the Government does not intend to allow general retail investors to access PISCES platforms. However, it is considering whether the following categories of retail investors should be permitted to trade on the platforms:

• self-certified sophisticated investors;
• high-net-worth investors; and
• employees of a company participating on PISCES.

During the sandbox trial period, participating companies will be able to retain some control over their share ownership by setting trading permission restrictions on the types of investor eligible to buy their shares.

How will intermittent trading work?

Trading on PISCES will occur during trading windows which are set by the participating companies (but subject to operator rules and market conditions). These trading windows could be weekly or monthly, for example, and there will also be flexibility as regards the duration of each window.

Trading will be carried out on an auction basis, with companies potentially being able to set price parameters for their shares. The consultation envisages that the basis of these parameters should be disclosed to investors participating on the platform.

The PISCES operator or the company could also set a minimum or maximum execution size for a particular trading window. If those thresholds are not met, then the trading window could be extended, or the auction will fail.

What disclosures will PISCES participating companies need to make?

In contrast to public markets, participating companies will not be required to disclose information to the general public. Instead, PISCES operators can establish a “private perimeter” so that company disclosures, and pre-and post-trade data, are only required to be made available to eligible investors that have opted to participate in the trading window. This will be achieved by applying a modified Market Abuse Regulation (MAR), and other applicable disclosure requirements, within the PISCES trial period.

The Government is proposing that companies will only need to disclose key information to eligible investors during a period extending from shortly before, to shortly after, each intermittent trading window. Although platform operators may impose additional requirements, the Government envisages that the following minimum information would need to be disclosed:

• Inside information: all price sensitive information (based on MAR) that has not been made available to all participating investors within the private perimeter.
• Information on share ownership: this could include a share capitalisation table.
• Price parameters: information on the floor and ceiling price used to establish a price for the relevant shares during the trading window.
• Trading permission restrictions: information on any restrictions set by the participating company on the types of investors that may buy shares during the trading window.
• Senior manager transactions in shares: information on transactions by the participating company’s senior managers in the company’s shares (whether on PISCES or elsewhere).

What about market abuse?

The Government is proposing that the market abuse regime applicable to PISCES will be tailored to an intermittent trading model and the specific risks posed by the system. Where appropriate, it will draw on existing definitions and concepts from MAR.

Significantly, the market abuse regime will apply only from when a participating company discloses information to investors before the trading window opens, through to the end of the trading event. However, it is proposed that the regime will prohibit the dissemination of false and misleading information outside of the trading window where it would impact on the trading of shares during that window. Other than that, companies will not be required to publish inside information outside of trading windows.

A participating company’s disclosures before each trading window should contain all inside information, and the delayed disclosure of inside information will not be permitted. If new inside information is identified after the initial disclosures, trading will not go ahead or will be suspended.

The PISCES MAR regime will also be limited to shares admitted to trading on PISCES and will not cover any other related financial instruments.

Offences from MAR relating to the unlawful disclosure of inside information, market manipulation and insider dealing will be maintained and adapted for PISCES.

Next steps

The PISCES consultation period ended on 17 April 2024 and the Government now intends to engage further with stakeholders based on the feedback it receives. It will then lay a statutory instrument before Parliament providing the legal framework for the PISCES sandbox.

A further FCA consultation on the PISCES sandbox will also be required, covering the applications and approval processes for taking part in the sandbox and the FCA rules that will apply to firms within it.

The Government is committed to having the PISCES sandbox up and running by the end of 2024.