The Financial Conduct Authority (FCA) confirmed on Tuesday in a joint statement with economic secretary to the Treasury, Emma Reynolds, that its Private Intermittent Securities and Capital Exchange System (Pisces) will launch later this year.
Pisces is a new trading platform where shares in private companies can be traded. The FCA said will “open the door to more opportunities for investors, facilitating their access to growth companies.”
Private companies will be able tap into a broader range of investors and asset managers with exits offered for shareholders to sell up. Companies can set the floor and ceiling of share prices, and have a say over who can buy their shares.
Simon Walls, executive director of markets at the FCA, said: “This bold design rebalances risk, but it is bold risk-taking that made the UK the leading financial centre 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.”
David Schwimmer, the CEO of London Stock Exchange Group (LSEG), told Yahoo Finance UK that he thought Pisces was “a good innovation,” signalling his optimism about the platform’s potential impact on both private companies and institutional players.
Schwimmer explained how the platform would enable private companies to access public market infrastructure without going public. “The private securities market that we are launching this year, which is on the Pisces framework, is a really interesting innovation for this market,” he said, adding that there has been a growing demand for liquidity among private companies.
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The government is currently looking to encourage more people to buy UK shares and attract more investment from overseas. Pisces is the latest step in the FCA’s wide-ranging reforms to boost growth and competitiveness, and unlock capital investment and liquidity.
It comes as a number of companies have recently moved their main listing to the US or been taken over.
The platform could also act as a stepping stone for private companies towards an initial public offering (IPO).
Dan Coatsworth, investment analyst at AJ Bell, said: “It might act as a stepping stone towards a public stock listing, getting them used to regular financial reporting, transparency as a business, and understanding that a company is run for the best interests of shareholders, not the board of directors.”
As companies choose to stay private for longer, there is demand for investors to trade private company shares easily and efficiently in an organised marketplace. Pisces meets this demand by allowing secondary trading of these shares.
Emma Reynolds, economic secretary to the Treasury, said: “Pisces is a great example of industry, regulators and the government working together to go further and faster on innovative reforms to strengthen UK capital markets, supporting economic growth and putting more money in people’s pockets as part of our Plan for Change.
“I welcome the FCA’s announcement, which follows our legislation and opens Pisces to industry. This also builds on our announcements on a stamp taxes on shares exemption for Pisces transactions, and on employees retaining the tax advantages on eligible shares traded.”
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Pisces will not be open to retail investors, unless they are employees of the company issuing the shares.
Access will be limited to institutional investors, high-net-worth individuals, sophisticated investors and employees of participating companies.
Investors will be provided with information about the risks involved to help them make informed decisions.
Coatsworth added: “It could also encourage their staff to develop a saving and investing habit. One of the biggest stumbling blocks for private company share ownership is that staff are often put off by the general inability to sell those shares at regular intervals.
“A lot of private companies won’t offer the ability for staff to trade shares, meaning some people are stuck owning the equity until the business either lists on a public market or there is an internal event where they can sell down.”
Schwimmer also suggested that the Pisces framework could reshape how liquidity is accessed and managed in the private market. “This can be a great way for [private companies] to access effectively public market infrastructure on the London Stock Exchange,” he said. Through Pisces, these companies would gain access to the trading systems and liquidity that are typically the domain of publicly listed firms.
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Pisces is not set to replace established stock markets like AIM as it will not support capital raising and it will not be open to the public — it is purely a secondary trading market with restrictions on who can buy and sell.
Apart from employees of the private company, only institutional investors, high net worth individuals or those deemed to be “sophisticated” investors will be able to buy and sell via Pisces. Share buybacks will not be permitted, at least in the initial stages of the market’s life.
These factors mean the platform will not be a direct rival to the AIM market.
AIM is already seen as a stepping stone for London’s main stock market — and the government are hoping this journey can start earlier, with Pisces as a pathway for AIM.
The proposal outlines plans to make Pisces share transactions exempt from stamp duty, and stamp duty reserve tax, which puts it in line with similar exemptions for AIM and the Aquis growth market.
“Removing stamp duty on all UK shares would be a major step forward as the current rules make the UK less competitive than many other locations such as the US and some European markets. Stamp duty is a cost for investors and can add up for those who place a lot of trades,” Coatsworth said.
He added: “Pisces is not going to change the world, but it should be a welcome addition to the UK’s investment ecosystem.”
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