The world’s first regulated private/public crossover market is significantly redesigned as a friction-free “private up” rather than “public down” market with rethought approach to disclosure and market abuse.
By Mark Austin, Chris Horton, James Inness, Anna Ngo, Frederick Gardner, and Johannes Poon
On 14 November 2024, the UK government published its response to the March 2024 consultation on the UK’s proposed new regulated private/public crossover market, the Private Intermittent Securities and Capital Exchange System (PISCES). The response document was accompanied by draft legislation to establish the PISCES sandbox and a policy note with commentary on the draft legislation.
Technical comments on the draft legislation are invited by 9 January 2025. Subject to the technical feedback on the draft statutory instrument, the PISCES legislation is intended to be introduced by May 2025. The FCA will publish a consultation on its proposed rules for PISCES in due course, which will include the disclosure requirements. Based on the feedback, the FCA will then finalise its rules before opening the PISCES sandbox for applications from companies wishing to use the platform.
The PISCES framework is now proposed as follows:
| Purpose | PISCES will operate as a secondary market, allowing the trading of existing shares during intermittent trading windows whose frequency can be determined by the issuer. It will not support capital raising through new share issuance. Companies will not be able to conduct share buybacks on PISCES initially, but the government is open to exploring this option post-launch. |
| Eligible Companies and Investors | The platform will be open to both UK private and public limited companies as well as overseas companies. Only shares of companies that are not listed on a public market will be able to be traded. The platform will be open to institutional investors, as well as the employees of participating companies, and investors who meet the definition of high-net-worth individuals and self-certified or certified sophisticated investors under the Financial Promotion Order. The government will consider whether to widen participation to retail investors more generally based on how the operation of the regime within the sandbox environment progresses. Those taking orders to place trades on PISCES will be required to “believe on reasonable grounds” that an individual meets the investor eligibility criteria. |
| Bespoke Disclosure Regime | In response to consultation feedback, PISCES will now not have a bespoke, public market-style market abuse regime. Instead, the FCA will develop a tailored disclosure regime based on the due diligence approach in private markets, ensuring transparency for participating investors but without public disclosure requirements. The government proposes to introduce a stricter “negligence” liability standard for certain information in PISCES disclosures, such as historic financial information, while applying a more lenient “recklessness” standard to forward-looking information. Reflecting changes from the initial proposals, PISCES will not now require transaction reporting and trading on PISCES will not be publicly disclosed. The FCA will consider rules related to record-keeping to support market supervision. Disclosures made by companies while using PISCES that are required or permitted by the FCA will be exempt from the financial promotion regime. |
| Settlement | PISCES operators will be able to decide whether or not shares must be recorded into a Central Securities Depository when the platform is used, or alternatively kept in certificated form for example. It anticipates that operators will give companies a choice. |
| Regulatory Sandbox | PISCES will initially operate within a protected sandbox environment for five years, allowing firms to seek FCA approval to run a PISCES platform under modified or disapplied UK regulations. Only a person that has certain FCA permissions under Part 4 FSMA 2000 or is a Recognised Investment Exchange will be eligible to apply to the FCA to operate a PISCES platform. The government will keep all elements of the design of PISCES under review, including whether further changes should be made after it has been launched. |
| Tax | As announced at Autumn Budget 2024, the government will exempt share trades on PISCES from stamp duty and Stamp Duty Reserve Tax. Separately, recognising their importance, the government will undertake further engagement with the market on the interaction between PISCES and tax-advantaged shares schemes such as EMI. |
| Takeover Code | The Takeover Code will not apply to a company solely by virtue of its securities being traded using PISCES. |
| Corporate Governance | Companies that use PISCES will not have any additional corporate governance requirements imposed on them through the new legislation. The FCA will be given rule-making powers to create a disclosure regime for PISCES, which will take into account the disclosure of the company’s corporate governance requirements. |