Proposals for a new platform – The Private Intermittent Securities and Capital Exchange System (PISCES) – where shares in private companies will be bought and sold have been set out today by the Financial Conduct Authority (FCA). 

According to the regulator, PISCES will open the door to more opportunities for investors to take stakes in private companies. Greater confidence to invest in these companies will lead to more funding to help them to grow and scale up.  

With many companies choosing to stay private for longer, there is increasing demand for investors to be able to trade shares in private companies more easily. A world-leading innovation in private markets, PISCES could provide opportunities for more diversified returns for investors.  

Such opportunities come with risk, which is why the FCA is consulting on risk warnings for investors to help them make informed investment decisions.  

Simon Walls, interim executive director of markets at the FCA, said: 

“Next year we will ring the bell on a new private stock market that could transform how private companies access funds and grow. It will offer investors more access and a greater confidence to invest in private companies and could act as a stepping stone to public markets for those firms. 

“We want to work with industry and ensure we have the right building blocks in place to support investment in growing companies.” 

Tulip Siddiq, Economic Secretary to the Treasury, added:

“PISCES will be an innovative new type of stock market for trading for private company shares and is a significant step forward in our reforms to capital markets. It will give investors the chance to get in on the ground floor of some of the most exciting companies and support the growth of those businesses.

“Today’s consultation marks a significant step towards delivery of the new market next year and sits alongside our wider programme of reforms to boost competitiveness and investment. That includes the FCA’s overhaul of the UK listing rules and the creation of pension megafunds which will unlock billions of pounds of potential investment in businesses.”

PISCES was a central pillar of the Chancellor’s Mansion House speech just over a month ago, and the FCA has been working in partnership with HMT to build the right framework.  

PISCES follows the FCA’s wide-ranging reforms to the UK’s world leading markets to boost competitiveness by:  

• reforming the prospectus regime, to make it cheaper and easier for companies to raise money in the UK. 
• giving asset managers greater freedom in how they pay for investment research and setting out proposals to extend that flexibility. 
• opening the Digital Securities Sandbox which allows firms to test innovative new technologies for trading and settling assets. 
• Setting out a roadmap to regulating crypto. 

The FCA will work with market participants, industry leaders, trade bodies and platform operators to develop a proportionate regulatory framework that can support growth and enable innovation. 

Commenting on the proposals, Hannah Meakin, partner at global law firm Norton Rose Fulbright said:

“PISCES is a new and innovative model for the secondary trading of shares in private companies that will be incubated in a sandbox. It uses aspects of both private and public markets but is closer to the private model – described as “private plus”.

“This is the first consultation paper from the FCA, which – though it has been working closely with HM Treasury throughout the process – is the body empowered to set the rules that PISCES operators and issuers will have to comply with. The paper provides a lot of flesh to sit on the bones of the draft legislation.

“There are numerous interesting aspects, but I would call out two in particular. One is the optionality that operators will be allowed to build into their offerings, such as in relation to some of the disclosure mechanisms. The second is the FCA’s proportionate and pragmatic approach, given these are less liquid investments and certain retail users will be able to participate.”

“The proposed new stock market called ‘Pisces’ could help private companies get used to the idea of slices of their business being owned by different people,” says Dan Coatsworth, investment analyst at AJ Bell.

“It might act as a stepping stone towards a full IPO and fits well into broader plans to make the UK a more attractive place for companies to list their shares.

“Pisces should help privately-owned companies get 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.

“It could also encourage staff in companies using Pisces 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.

“In theory, Pisces could improve liquidity by allowing private company shares to be traded at more regular intervals. However, it has only been designed for intermittent trading, not the continuous trading during market hours that you get with publicly listed stocks. Such restrictions would give a company control over when changes in share ownership can happen.”