The Financial Conduct Authority (FCA) has published the final rules for the new Private Intermittent Securities and Capital Exchange System (PISCES). PISCES is a private stock market that will allow shares in private companies to be traded more easily. It aims to give investors better access to these investment opportunities.
The FCA says PISCES is part of its efforts to reform UK markets to enhance growth and competitiveness. The new stock market will help private companies access a wider range of investors and asset managers. It will also provide shareholders with ways to sell their stakes.
As private companies choose to stay private longer, there is a growing demand for an organized marketplace to trade these shares. PISCES is set to meet this demand by facilitating secondary trading. Access to PISCES will be limited to institutional investors, high-net-worth individuals, sophisticated investors, and employees of participating companies.
Information about the risks involved will be provided to help investors make informed decisions. The platform will initially be tested through a sandbox. This will allow the FCA to refine its design before establishing a permanent regime in 2030.
The sandbox is currently open, and shares are expected to be traded later this year. Simon Walls, executive director of markets at the FCA, stated, “This bold design rebalances risk, but it is bold risk-taking that made the UK the leading financial center it is today. The new platforms will give investors greater access and confidence to invest in exciting new companies, while early backers and employees can sell up and invest again.”
Emma Reynolds, Economic Secretary to the Treasury, remarked, “PISCES is a great example of industry, regulators, and the government working together to go further and faster on innovative reforms.
Pisces sandbox for private markets
This initiative will strengthen UK capital markets, support economic growth, and ultimately put more money in people’s pockets as part of our Plan for Change.”
Some industry figures have expressed reservations about PISCES. Venture capitalists and private equity executives question the demand for the proposed framework.
They compare it to the struggling Alternative Investment Market (AIM) in London. Bankers have also raised concerns about potential insider dealing, competitors infiltrating shareholder registers, and the impact on privacy and valuations. However, much of the criticism directed at PISCES appears to stem from a lack of understanding of how the platform will work.
Concerns about privacy and the impact on future valuations are based on misconceptions that PISCES transactions will mirror public market operations. In reality, issuers and operators can choose between having the execution price market-determined within specific boundaries or pre-set by the issuer. The fear of competitors infiltrating the shareholder register is also misplaced.
Private entities will maintain control over their registers and can accept or reject new shareholders. Concerns regarding insider dealing miss the mark as insiders will still be bound by company articles and shareholder agreements. Contrary to some opinions, there is significant investor appetite for access to private markets, evidenced by the rapid growth in secondaries.
Secondaries offer firms a quicker route to liquidity and provide investors access to high-growth businesses. The increasing importance of secondaries underlines the need for PISCES. If implemented correctly, PISCES could catalyze the UK’s private markets ecosystem and position private markets as direct competitors to public counterparts.
The goal of PISCES is to enable firms to scale up privately to the point of IPO. However, the reality may be that firms find an alternative route to liquidity without the extensive costs and challenges associated with public listings.
