The UK’s Private Intermittent Securities and Capital Exchange aka PISCES, is a proposed new regulated trading framework which is designed to allow for the intermittent trading of existing shares in private companies.
Among the advantages it is intended to offer companies is a potential stepping stone towards a public markets listing and a tool for a secondary market in private companies’ stock, allowing shareholders to realise some of their capital without a listing being required.
At the moment the FCA is still consulting with the industry on what the final version of PISCES will look like from a regulatory perspective. Feedback so far has indicated that the new regime will not include a public style market abuse proviso and will only be accessible by institutional and high net worth investors. Companies will not be able to carry out share buy-backs initially.
The final regulations are expected to go before Parliament in May.
Enhanced liquidity for UK private companies
PISCES presents an intriguing attempt to enhance liquidity by offering an alternative to traditional stock exchanges. While any mechanism that helps entrepreneurs unlock equity is a welcome innovation, its practical appeal remains uncertain.
“Since PISCES only facilitates secondary trading without enabling capital raising, many companies may have little incentive to use it,” said Douglas Grant, CEO of Manx Financial Group. “Managing separate regimes for primary and secondary markets could also introduce unnecessary complexities. A critical factor in its success will be the alignment of tax incentives to encourage entrepreneur participation.”
Without a supportive framework, uptake may be limited, Grant reckons. Moreover, existing platforms, such as AIM, may see PISCES as a competitive threat rather than a complementary tool, further constraining its market impact.
That said, one of its most promising aspects is the potential to enhance liquidity by de-regulating fragmented local pension schemes, a strategy that has proven highly effective in other jurisdictions. If implemented effectively, this could drive market growth and create more robust capital dynamics. However, without clear advantages over existing alternatives, PISCES risks being a solution in search of a problem.
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PISCES is not for capital raising
One of the important factors to emphasise is that PISCES is not intended to be a platform for companies to raise capital. As such it does not even require a public share price to be published. It offers a framework for independent platforms to assist private companies in a secondary market. PISCES will only be accessible via a broker that is offering it.
There are some platforms already operating in the UK which offer a similar service. JP Jenkins, for instance, is becoming increasingly popular with smaller venture companies that want to take advantage of a daily liquidity model. It recently admitted brewing and hospitality group Powder Monkey and has also hosted former AIM companies that have withdrawn from public markets like oil and gas explorer Bowleven.
“We like the idea of the FCA offering a sandbox to try this out,” says Mike McCudden, CEO of JP Jenkins. “A five-year sandbox, as offered by the FCA, will let platforms try out different approaches.”
There are also concerns that some companies have come to the AIM growth market of the London Stock Exchange too early, and this is why many are now de-listing and transferring to providers like JP Jenkins. PISCES might offer a suitable halfway house which will allow smaller companies to start to get used to the idea of having more shareholders before a full listing on AIM.
“We think it’s very important for platforms using PISCES to have a good relationship with company management and to be able to provide that route to an IPO when they grow large enough,” says McCudden at JP Jenkins. “That’s the successful outcome for us too. Many R&D style businesses with no revenue are going public when it simply may be too early. This model provides a valuable means for companies to broaden their experience with investors before taking on public company responsibilities.”
Right now the industry is taking a position of cautious optimism with regard to the advent of PISCES. It may indeed deliver shareholders and company management an important stepping stone towards public markets.
