In March 2024 we reported that HM Treasury had launched a consultation on its proposals to establish the Private Intermittent Securities and Capital Exchange System (PISCES) a new type of regulated platform to allow private companies to trade their securities in a controlled environment and on an intermittent basis. The consultation proposed establishing the regulatory framework for PISCES through a Financial Market Infrastructure (FMI) sandbox.

On 14 November 2024, during her first Mansion House speech, the Chancellor reaffirmed the Government's commitment to reinvigorating capital markets, unveiling plans for a new share trading market. On the same day, HM Treasury published its response to the earlier consultation on PISCES along with draft legislation to establish the PISCES sandbox. This draft legislation, combined with the appropriate FCA rules when published, sets out the regulatory requirements for PISCES. A policy note was also published to help stakeholders review the draft legislation. Subject to the technical feedback received, HM Treasury intends to introduced the PISCES legislation by May 2025.  

The response confirms that the Government intends to proceed largely with the approach outlined in its original consultation, using the powers granted by the Financial Services and Markets Act 2023 to establish PISCES as an FMI sandbox.  Firms wishing to operate a PISCES platform will need to seek approval from the FCA, and the period of the sandbox will be set to five years. 

Key features of PISCES include:

  • Secondary market: PISCES will act as a secondary market, allowing the trading of existing shares during specific trading windows. PISCES will not be used for raising capital by issuing new shares.
  • Unlisted shares: only shares from companies that aren't listed on any public market (either in the UK or abroad) can be traded on PISCES. The shares to be traded must be freely transferable at the time of a PISCES trading event, meaning that companies will need to consider any restrictions contained in their articles or any shareholders' agreement.
  • Eligible investors: trading on PISCES will be limited to institutional investors, employees of participating companies, and investors who qualify as high net worth individuals or sophisticated investors under the Financial Promotion Order 2005 (FPO 2005). The Government may consider expanding this to retail investors after the five-year trial.
  • Market abuse rules: in a change from the original consultation, the PISCES regime won't include a public market-style market abuse regime, instead the FCA will be granted rule-making powers to create a new and bespoke disclosure regime for PISCES.  
  • Disclosure within a private perimeter: PISCES operators and companies will not be required to publicly disclose information in relation to the trading of shares on PISCES. The FCA will consult on rules regarding disclosure requirements in due course.
  • Transparency:  investors that are able to participate in trading events must have access to pre- and post-trade transparency information. The FCA will also consult on detailed requirements related to pre- and post-trade transparency requirements for PISCES in due course.
  • Responsibility for managing access to trades: the person taking an order to trade will be subject to an obligation to verify the eligibility of the investor to participate on PISCES.
  • Share buybacks: initially companies won't be able to conduct share buybacks on PISCES. However, based on feedback received HM Treasury is considering allowing this in the future.
  • Corporate governance: no additional corporate governance requirements will be introduced for private companies whose shares are traded on PISCES. The FCA will be given rule-making powers to create a disclosure regime for PISCES, which will take into account the disclosure of companies’ corporate governance arrangements.
  • FPO 2005 exemption: a new exemption will be introduced to the FPO 2005 specifically for PISCES disclosures.
  • Changes to the Companies Act 2006: the Government will proceed with its proposals to amend section 756 of the CA 2006 to allow private companies to participate on PISCES, and to modify section 793 to give participant companies powers to require information from investors that they believe to have an interest in its shares.
  • Settlement: PISCES operators will be able to decide whether or not shares must be recorded into a Central Securities Depository (CSD).
  • Tax treatment: PISCES transactions will be exempt from stamp duty and SDRT as announced in the Autumn Budget 2024. This exemption will be introduced on a similar timeline to the wider legislation establishing the PISCES regulatory framework.
  • Takeover Code: the UK Takeover Code will not not apply to a company solely by virtue of its securities being admitted to trading on PISCES as it would not be categorised as a Regulated Market, an MTF or an OTF.

What next?

Technical comments on the draft regulations must be submitted by 9 January 2025.  Subject to the technical feedback received, HM Treasury intends to introduced the PISCES legislation by May 2025.  

The FCA will also publish a consultation on its proposed rules for PISCES in due course, and once these rules are finalised, the PISCES sandbox will open for applications.

HM Treasury also plans to make further changes to the UK's MiFID framework and has published a policy paper titled “next steps for reforming the UK Markets in Financial Instruments Directive”  outlining these changes.