WHAT ARE THE KEY DRIVERS FOR REFORM?
The UK Treasury ("HMT") noted the following as drivers for reform:
- A key challenge for private companies is that, at early stages in their growth, there are no standardised ways for shareholders to realise their gains (e.g., where their shares have increased in value) or to allow companies to rationalise their shareholder base by providing their early investors an exit route.
- Similarly, it is harder for investors to access companies that are not yet operating on public markets.
- At present, there is also no practicable mechanism for private companies to have their shares admitted to trading on a multilateral system, with disclosure obligations applying only during those intermittent windows.
- Furthermore, existing arrangements in the UK do not allow private companies to, for example, decide when their shares may be traded, who is allowed to buy the shares, the price at which the shares are traded and who may receive information about the company or transactions in its shares.
- The PISCES regulatory framework will establish a hybrid regulatory regime that incorporates elements from public markets such as multilateral trading and elements from private markets such as greater discretion for private companies over the trading of their shares. This will enable PISCES platforms to provide investors with concentrated liquidity in private company shares and provide private companies with easier access to new investors seeking to allocate capital to successful growing businesses.
Further, the FCA has stated that: “PISCES could be an innovative, flexible, efficient and effective solution for private companies to provide investors and employees with concentrated liquidity events in which to buy and sell shares. It should enable private companies to reach a broader range of investors, strengthening their capital-raising prospects outside of PISCES, achieve their growth aspirations and support their potential future transition to public markets".
WHAT ARE THE PROPOSED REGULATORY REQUIREMENTS?
PISCES is a new type of share trading platform which a FCA authorised firm can apply to operate to trade the shares of private companies in secondary markets. It allows buyers and sellers (in or outside the UK) of shares in private companies to trade those shares during intermittent trading periods.
The rules for the PISCES sandbox are set out in the Private Intermittent Securities and Capital Exchange System (PISCES) Instrument 2025 which will form part of the FCA Handbook.
The key features of PISCES will be as follows:
- As a secondary market, it will facilitate the trading of existing private company shares for UK or overseas companies. It cannot be used for primary issuance e.g. for initial public offerings.
- The FCA has created a new and bespoke disclosure and transparency regime for private companies whose shares are traded on a PISCES platform. Private companies whose shares are traded on a PISCES platform may be liable to investors who suffer losses arising from misleading information disclosed by that company in connection with a trading event or period.
- PISCES operators will be able to decide whether or not shares must be recorded into a central securities depository (e.g. Euroclear).
- Only shares in private companies whose shares are not currently admitted to trading on a public market (in the UK or overseas) can be traded on PISCES.
- Private companies incorporated outside of the UK can use a PISCES platform as a trading venue for its shares to be traded, but will also need to consider the impact of this on local laws that apply in its jurisdiction of incorporation (e.g. regarding disclosure to investors on a PISCES platform).
- Operators of a PISCES platform can determine any admission requirements for their proposed market, including any minimum corporate governance requirements for private companies whose shares are traded.
- During intermittent trading events, financial intermediaries (like brokers) will act as a bridge between investors and a PISCES platform. They will connect investors to a PISCES trading platform by (i) placing their buy and sell orders and (ii) promoting PISCES shares. Promotion and marketing of PISCES shares will need to comply with the UK financial promotion regime.
- Trading on PISCES will be intermittent. It must be occasional, infrequent and for a limited time period. Operators running each PISCES platform will decide when intermittent trading events take place and how long they last for.
- Companies can choose PISCES platforms that offer trading events that suits their needs.
- Companies will have discretion on (a) when the shares may be traded (b) who is allowed to buy the shares (c) the price at which the shares are traded and who gets information about the company and (d) any transactions in its shares, subject to their PISCES operator’s business model and FCA rules.
- Only certain categories of investors will be able to trade on PISCES. These include (a) professional clients as defined under MIFIR; (b) those who meet the definitions of self-certified sophisticated investors, sophisticated investors, and high net-worth investors based upon the FSMA 2000 (Financial Promotion Order) 2005 (FPO); (c) employees of participating companies and those providing consultancy and managerial services; and (d) trustees of share incentive plans and employee benefit trusts.
- Most retail investors are prohibited from trading on a PISCES platform.
- A PISCES platform may not facilitate the trading of options, or other derivative products.
- The FCA rules prohibit financial intermediaries from enabling PISCES companies using a platform for buybacks.
- To apply to the FCA for permission to operate a PISCES platform, FCA regulated firms will need to have either Part 4A permissions under the Financial Services and Markets Act 2000 ("FSMA") to (a) arrange deals in investments, (b) operate an multilateral trading facility, or c) operate an organised trading facility (OTF) or be a Recognised Investment Exchange as defined under FSMA 2000.
- Financial intermediaries have an obligation to check the eligibility of a potential UK investor when taking an order to purchase. The requirement to undertake an eligibility check will fall on the firm who is interacting with the end client, whether that firm is a regulated intermediary (e.g., a broker or investment bank), or the operator of a PISCES platform where there are no intermediaries involved on the PISCES platform.
- PISCES will not be an multilateral trading facility (MTF) or trading venue as defined under UK MIFIR. The transparency requirements for shares traded on a trading venue will therefore not apply by default to PISCES operators. The FCA have instead been granted rule-making powers to set bespoke requirements for pre- and post-trade transparency information on PISCES.
WHO IS IMPACTED BY THESE REGULATORY REFORMS?
The PISCES arrangements affect:
- FCA authorised firms who apply to become an operator of a PISCES platform.
- Financial intermediaries (brokers) intending to place buy or sell orders on a PISCES platform.
- Investors in private companies intending to participate in trading on a PISCES platform (including shareholders looking to exit their investments e.g. US private equity firms).
- Private companies whose shares will be traded on a PISCES platform.
WHAT ARE NEXT STEPS?
The Private Intermittent Securities and Capital Exchange System (PISCES) Instrument 2025 came into force on 5 June 2025 as a regulatory sandbox initiative. The FCA will set up, operate, and supervise the PISCES regulatory regime, and will have rulemaking powers over persons participating in the regime. The FCA can make new rules, modify existing rules, or direct how and to whom existing rules may apply or be waived, as it considers necessary or expedient to operate and supervise the regime.
PISCES platforms will be operated initially for a period of up to five years, until 5 June 2030, with the possibility of extension by the Treasury when it has had the opportunity to assess the legislation’s intended outcomes.
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