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PISCES

Bridging the Gap Between Private and Public Equity Markets

SUMMARY: In an effort to rejuvenate the UK’s capital markets and provide more liquidity for private companies, the UK government has introduced a groundbreaking initiative: the Private Intermittent Securities and Capital Exchange System (PISCES). Slated for a full launch in early 2025, PISCES is set to transform the way private companies and their investors interact with the market.

What is PISCES?

PISCES is a trading venue designed to allow the exchange of shares in private companies at set intervals. Traditionally, private companies have faced significant barriers to liquidity, as their shares are not traded on exchanges. Instead, private equity holders, including venture capitalists and early investors, often have to wait for an exit event—such as an initial public offering (IPO) or acquisition—to realise their investments. This illiquidity has been a major deterrent for investors considering private companies, particularly for startups and SMEs.

PISCES aims to address this by creating liquidity windows where private company shares can be traded in a controlled environment on a predetermined schedule. These intermittent windows provide flexibility for companies and investors alike, giving shareholders the opportunity to buy and sell shares without the burden of ongoing public market regulation. At its core, PISCES blends elements of traditional public market trading with the bespoke nature of private equity ownership.

The Sandbox Environment: Testing New Waters

One of the unique aspects of PISCES is its use of a regulatory sandbox. This temporary five-year testing environment allows for the relaxation of existing securities laws, offering a controlled space to trial new technologies and regulatory frameworks before making the system permanent. The sandbox will adjust key regulations, including those under the Financial Services and Markets Act 2000 and the Companies Act 2006, specifically to enable the intermittent nature of trading.

The sandbox will also apply modified Market Abuse Regulations (MAR), ensuring that companies using PISCES can maintain confidentiality while still providing sufficient transparency for investors. By allowing companies to disclose information only during trading windows, PISCES offers a lighter regulatory burden compared to a full public listing, making it particularly appealing to private companies wary of the costs and scrutiny associated with an IPO.

How PISCES Will Affect Large-Cap Companies

While PISCES is primarily targeted at private firms, its potential impact on larger businesses cannot be ignored. For larger, mature companies that have opted to remain private—either by avoiding the complications of public listings or delaying an IPO—PISCES could be an attractive intermediary solution. These companies can benefit from the liquidity provided by PISCES without exposing themselves to the extensive regulations and transparency requirements of a full public listing.

PISCES also supports companies looking to rationalise their shareholder base by providing a structured avenue for investors to exit. Venture capitalists and private equity investors can use the system to sell portions of their holdings, gradually reducing their stakes as the company grows. This could help large private companies maintain a healthy cap table and set the stage for an eventual IPO.

Impact on SMEs and Startups

Where PISCES could truly shine, however, is in its potential benefits for SMEs and startups. Traditionally, small and medium-sized enterprises have struggled with liquidity in private markets. While institutional investors may hold significant equity in a promising startup, the lack of an exit strategy or a secondary market to offload shares can make it difficult for these companies to attract fresh investment. PISCES provides a solution by opening up trading opportunities without the need for a costly and time-consuming IPO.

Startups, in particular, stand to gain from the ability to trade shares intermittently, as this gives early-stage investors, including employees with stock options, a chance to liquidate their holdings at predefined intervals. This flexibility can also make startups more attractive to venture capital and private equity investors, as they will no longer be entirely locked into a long-term investment cycle.

For these companies, PISCES reduces the pressure to achieve an exit through an IPO or acquisition, allowing them to grow at their own pace. With lower regulatory burdens than the public market, startups can focus on scaling their business without the fear of constant investor scrutiny or the need for continuous public disclosures.

Regulatory Challenges and Limitations

Despite its promise, PISCES is not without its challenges. One key issue is that the platform is only available to institutional and professional investors during its initial phase. While this ensures a degree of protection and market stability, it limits the broader participation that could drive liquidity. There is ongoing debate about whether sophisticated retail investors, such as high-net-worth individuals and employees of companies using PISCES, should be allowed to participate.

Another challenge is the limited timeframes for trading. By design, PISCES only allows trading during specified windows, which could reduce liquidity compared to public markets. Companies may also face legal and contractual hurdles in making their shares freely transferable, as many private companies have restrictions on share transfers within their shareholder agreements. For firms considering an IPO, introducing new stakeholders through PISCES could complicate their capital structure, potentially making the transition to a full public listing more difficult.

Additionally, there are questions surrounding the level of disclosure required on PISCES. While the modified market abuse regulations allow for reduced transparency compared to public markets, companies must still disclose critical information such as insider transactions, share ownership details, and price parameters. Balancing the need for confidentiality with the demand for investor transparency will be crucial to maintaining trust in the platform.

Prospects for PISCES and the UK Market

PISCES is launching at a time when the UK is working hard to bolster its appeal as a global financial centre. By providing an innovative solution that bridges the gap between private and public markets, PISCES could help the UK compete with other financial hubs like New York, which already offers similar private market platforms through the Nasdaq Private Market.

The platform aligns with broader government reforms aimed at boosting UK listings, such as the Mansion House Compact, which encourages pension funds to invest in growth companies. By facilitating private share trading and offering liquidity for growth-stage companies, PISCES could contribute to a more robust pipeline of companies transitioning from private to public markets.

If deployed correctly, PISCES has the potential to significantly enhance the UK’s private markets ecosystem, offering companies a flexible, cost-effective alternative to an IPO. However, its long-term success will depend on how well the platform addresses concerns around liquidity, disclosure and market participation.

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