The UK has given the green light for new platforms to host periodic trading in private companies' shares and has watered down how it plans to regulate potential insider trading following industry feedback. Platforms are expected to go live around the middle of next year once legislation goes through in May.
The UK set out proposals for the Private Intermittent Securities and Capital Exchange System – or Pisces – in March, as a key part of reviving London’s capital markets. The aim is to allow trading in private companies once a month (or another period) to serve several purposes, including provide liquidity for investors in private companies to buy or sell shares; allow staff to sell shares; help build an IPO pipeline; and encourage startup and growth companies to remain in the UK.
The government had intended to use a market abuse regime similar to that used in public markets, but because trading on Pisces will take place intermittently that raised concerns investors and others would need to take significant steps to ensure they didn’t inadvertently trade on inside information.
The UK Treasury said strong industry feedback signalled that would have been too costly and cumbersome for companies, investors and intermediaries.
“This would have involved identifying and disclosing all potential inside information, resulting in disproportionate costs for all involved parties,” the Treasury said in a government response to the consultation released this month.
As a result, the Treasury said it plans to give the Financial Conduct Authority rule-making powers to create a new and bespoke disclosure regime for Pisces. Disclosures will have to be shared with all investors participating in a trading event, but will not be required to be made public.
“This approach seeks to streamline the effort taken to undertake due diligence in bilateral private market transactions, without replicating the disclosure requirements for primary fundraising on public markets,” the Treasury said.
The FCA is expected to provide further details on disclosure rules shortly. Limiting the disclosure requirements for companies so it is not as costly or burdensome as for listed companies is a key element of the platform.
The Treasury also said in last month’s budget that all transactions on Pisces will be exempt from stamp duty, as an incentive for companies to join.
It said retail investors will be excluded from Pisces, and platforms will only allow institutional investors, employees of participating companies and high net-worth individuals to buy shares on the platforms.
“This approach seeks to strike a balance between allowing a sufficiently wide pool of investors to participate and reap the benefits of Pisces, while recognising the risks involved in investing in private companies and the need for investor protections,” the Treasury document said.
Mid-2025?
The Treasury said it intends to introduce Pisces legislation by May, and those wishing to run a platform will then need to get approval from the FCA.
Potential market operators are now working with banks, stockbrokers and other market participants to iron out practicalities of how platforms will work and where responsibilities lie.
The UK had wanted to launch the platform this year, but the process was delayed by the general election and change in government and complexities of setting up the regulatory landscape and disclosure rules.
One senior banker said that while the concept of the market made sense, it was not clear if Pisces will improve on other options already available to private companies. Indeed, there has been a jump in secondary market deals handled by investment banks for private companies recently, reflecting the desire of firms to reward or attract talented staff, especially if they have remained private for longer than expected.
In August, UK fintech firm Revolut completed a US$500m secondary share sale that allowed employees to sell shares to a group of new and existing investors, which was handled by Morgan Stanley and valued Revolut at US$45bn.
Another UK fintech, GoCardless, has picked Lazard to help it with a US$200m secondary share sale to help early investors and staff to cash in, while Monzo and Moneybox have also recently given staff the option to cash out in similar secondary share sales, according to reports.
Often those private transactions are manual and bespoke, however. Pisces is intended to make that process more standardised and transparent, and an option for smaller companies. The platforms are intended to allow multilateral price formation, where orders can match off against each other and give a fair price – in a similar way to opening and closing auctions in public markets.
Companies will not raise money on Pisces. The platform will provide windows for trading a private company's existing shares at pre-determined intervals – perhaps monthly, quarterly or annually. Providing a regular liquidity event could also support fundraising efforts if investors know there is a clearer exit path in future.
Industry sources said crucial to the platforms’ success will be getting decent sized private companies on board early to show how it can operate.
The UK has about 54 unicorns, or private companies valued at more than US$1bn, according to analysis firm CB Insights. There are many financial, insurance or payments tech unicorns such as Revolut and its peers. The list also includes the likes of sportswear company Castore and drinks firm Brewdog.
It will be rolled out using a regulatory "sandbox", which allows platforms and ideas to be tested in a modified regulatory framework and then adopted across financial markets. The Treasury said the sandbox will last for five years.
LSEG, which owns IFR, has been involved in the discussions and aims to run a venue. Julia Hoggett, CEO of London Stock Exchange, part of LSEG, said there is a “unique opportunity” for private and public markets to work together to help companies access capital and liquidity and investors to access high-quality assets.
Other operators are also expected to consider platforms. Globacap, a capital markets tech firm, told IFR it is likely to apply for authorisation. But Myles Milston, co-founder and CEO of Globacap, said Pisces is unlikely to boost the UK's IPO pipeline, and could lead to a decline.
"In recent years, private markets have advanced to the point that firms can secure the vital funding they need for growth without the headache of a public listing. Pisces will enable more firms to stay private by creating a formal framework by which secondary trading of those companies' shares can take place," Milston said.
"If Pisces is deployed in the right way, it could be a real catalyst for the UK’s private markets ecosystem and provide some much-needed competition for the UK’s public markets, unlocking more capital to invest and drive growth,” he said.