On 14 November 2024, the Chancellor of the Exchequer, Rachel Reeves, delivered her first Mansion House Speech (an event intended to provide insights into the UK Government’s fiscal and economic policies), and the UK Government released its response to the newly proposed regulated private/public crossover market, the ‘Private Intermittent Securities and Capital Exchange System’, also referred to as ‘PISCES’. PISCES will be a new secondary market that aims to support private companies to scale and grow, and strengthen the flow of future IPOs (Initial Public Offerings) in the UK.

As part of its response, the UK Government published draft legislation to initially establish a ‘regulatory sandbox’ (a controlled environment from which the PISCES regime will be tested and developed), as well as a policy note providing commentary on the draft legislation. The PISCES regulatory sandbox will operate for five years. During this period, only a person which has relevant FCA permissions under Part 4 Financial Services and Markets Act 2000 or is a ‘Recognised Investment Exchange’ will be eligible to apply to operate a PISCES platform.

The PISCES framework proposal consists of the following:

• Objective: PISCES will operate a secondary market where existing shares can be traded during intermittent trading windows, and frequency of the trading windows can be determined by the issuer. However, companies will not be able to raise capital through issues of new shares or initially conduct share buybacks (but the UK Government will explore whether to allow share buybacks or not at a later stage).

 

• Eligible Companies: PISCES will be open to private and public UK companies and overseas companies, only shares in companies that are admitted to trading in the public market (in the UK or abroad) can be traded on PISCES.

 

• Eligible Investors: PISCES will be open to institutional investors, employees of participating companies and investors who can meet the definition of high net-worth individuals and self-certified or certified sophisticated investors under the Financial Promotion Order (FPO). The operators / those taking orders to place trades on PISCES will be required to “believe on reasonable grounds” that an investor meets the eligibility criteria. The UK Government will consider whether to widen participation to retail investors more generally based on how the operation of the regime within the regulatory sandbox progresses.

 

• Disclosure Regime: PISCES will not have a public market style market abuse regime (this reflects a change from the initial proposal). Instead, the FCA will be given rulemaking powers to create a new and bespoke disclosure regime for PISCES. Under this regime, disclosures and pre and post trade transparency must be shared with all investors participating in a PISCES 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.

 

There will be a new FPO exemption to cover PISCES disclosures, based on the exemptions available for promotions included in mandated public market disclosures.

 

• Liability Standard: The UK government proposes to introduce a stricter “negligence” liability standard for certain information in PISCES disclosures, such as historic financial information, while applying a more lenient “recklessness” standard to forward-looking information.

 

• Transaction Reporting – As there will be no market abuse regime, there will also not be transaction reporting requirements for PISCES (again, this reflects a change from the initial proposal). The FCA will consider whether to set rules related to record-keeping to support their supervision of the market.

 

• Takeover Code: The Takeover Code will not apply to a company solely by virtue of its securities being admitted to trading on PISCES.

 

• Corporate Governance: Companies that use PISCES will not have any additional corporate governance requirements imposed on them through the new legislation. The FCA will be given rule-making powers to create a disclosure regime for PISCES, which will take into account the disclosure of the company’s corporate governance requirements.

 

• Settlement: PISCES operators will be able to decide whether company should have their shares recorded on a Central Securities Depository in order to participate on their platform, or alternatively be kept in certificated form, for example. This would not prevent the operators from providing a choice to participant companies, though they may want to also consider the preferences and interests of potential investors using their platform.

 

• Tax: Share trades on PISCES will be exempt from Stamp Duty and Stamp Duty Reserve Tax. As announced in the Autumn Budget in October 2024, the UK Government will consider further the interaction between PISCES and tax-advantaged shares schemes.

The UK Government requested feedback on the draft legislation by 9 January 2025, following which it intends to introduce the PISCES legislation by May 2025. The FCA will publish a consultation on its proposed rules for PISCES in due course, which will include the disclosure requirements. After reviewing the consultation responses, the FCA will finalise the rules and proceed to open the PISCES regulatory sandbox for applications from companies interested in using the platform.

Specialist Advice from Druces Capital Markets

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