The UK government has published a consultation paper on its proposals for the Private Intermittent Securities and Capital Exchange System (PISCES): platforms for secondary market trading in the shares of private companies on an intermittent basis under a new regime combining elements from public and private markets, including a tailored disclosure and market abuse regime. The deadline for responding to the consultation is 17 April 2024.

The government aims:

• to support the growth of private companies by enabling them to provide intermittent (monthly, quarterly, etc.) liquidity to their shareholders, including employee shareholders;
• to allow investors in private companies to benefit from a more transparent and efficient trading environment; and
• to support the pipeline for future public offerings in the UK.

The government first announced its intention to create an 'intermittent trading venue' as part of the Edinburgh reforms in December 2022 and has committed to establishing the new regime by end-2024. PISCES will provide a secondary market available to UK and overseas companies whose shares are not admitted to other markets and companies will not be able to use the platforms to raise new capital through share issuance. PISCES will be limited to the trading of existing shares and PISCES will not be available for trading of other securities such as bonds or ETFs.

Legal framework

The government will establish the regulatory regime for PISCES using its 'financial market infrastructure sandbox' powers under the Financial Services and Markets Act 2023 to create a 'PISCES sandbox' by modifying existing legislation. Existing legislation would prevent the establishment of a multilateral platform like PISCES where disclosure, transparency and market abuse rules only apply on an intermittent basis. The government proposes a five-year trial period for the regime while it ensures the regulatory requirements are properly calibrated, after which it may extend that period or establish the PISCES regime on a permanent basis.

PISCES operators

UK entities that are authorised firms or recognised investment exchanges would be able to apply to the FCA to operate a PISCES platform. The rules applied to platform operators would be largely based on the current rules for operators of multilateral trading facilities, including requirements to ensure fair and orderly trading. But operators would set their own admission requirements for companies and propose their own trading protocols. These might allow companies to set price parameters for trading on the platform, to determine which investors can participate in an auction of shares, to set minimum and maximum execution sizes, and to fix the frequency and duration of the trading windows.

Investors eligible to trade on PISCES

Existing shareholders, including employee shareholders, would be able to sell shares on a platform. However, given the risk profile and liquidity of the shares, only institutional and professional investors would be able to buy shares on PISCES (at least during the trial period), although the consultation asks whether the category of permitted buyers should be expanded to include self-certified sophisticated investors, high net worth investors and employees.

Investors' access to a platform would generally be intermediated by authorised firms acting as participants, but operators might be allowed to operate a non-intermediated model, subject to additional safeguards.

Company disclosures

The disclosure obligations for companies would be different to public markets. Disclosures would be intermittent, only available immediately before and after a trading event, and only made available to eligible investors that opt to participate in the trading window. Companies would be required to disclose, at least, all inside information about the company and its shares, information on share ownership and trading by senior managers and any price parameters and requirements on investor participation.

Disclosure would be made a few days before the trading window opens and companies would not be able to delay the disclosure of inside information. New information becoming available during a window would result in the cancellation of the trading event.

The operator would be responsible for setting rules to ensure that company disclosures and pre- and post-trade transparency data are not disclosed outside the 'private perimeter' of those participating in the trading window. Companies would be subject to criminal and civil liability for false or misleading information and omissions of material information similar to issuers on public markets.

Market abuse

The government proposes to apply the market abuse prohibitions on insider dealing, unlawful disclosure of inside information and market manipulation to PISCES trading but limited to on-platform trading of shares admitted to trading on PISCES. The regime would not apply to bilateral, OTC trading in those shares or in securities or derivatives linked to those shares, although it would apply to the dissemination of false or misleading information outside trading windows that might affect trading during a trading window.

Platform operators and intermediaries would have to maintain procedures to prevent, detect and report suspected market abuse to the FCA. Companies would not have to maintain insider lists but would have to keep records of individuals involved in identifying information potentially disclosable as inside information (and make those records available to the FCA on request).

Corporate law

Shares admitted traded on PISCES would have to be freely transferable, but PISCES operators could decide whether transactions should be cleared through a central securities depository or settled using the company's existing registrars.

The government plans to change corporate law to ensure that private companies can place shares with investors without the possibility of subsequent trading on PISCES resulting in that placement being treated as an unlawful offer to the public. It also plans to give private companies admitted to PISCES powers to require the disclosure of interests in their shares similar to those available to public limited companies.

It would be up to platform operators to set any corporate governance requirements for companies as part of their admission criteria. The consultation invites comments on its proposal not to allow share buybacks on PISCES.

Transparency and transaction reporting

Investors accessing PISCES would have access to pre- and post-trade information on bids and offers and transactions calibrated to the periodic trading or auction trading system. However, the operator would have discretion as to the extent to which any of this information is made public. The consultation proposes that platform operators (and not participants) would be responsible for reporting transactions to the FCA.

Financial promotions

The consultation envisages that companies would rely on existing exemptions from the restrictions on financial promotions to inform shareholders and potential investors of the admission of their shares on PISCES.

Next steps

The government will lay a statutory instrument detailing the regime later in the year. The FCA will also consult on its rules implementing the new regime.

Authors: Paul Ellison and Chris Bates