UK Chancellor Jeremy Hunt has launched consultation on the proposed Private Intermittent Securities and Capital Exchange System (aka PISCES) as part of the Spring Budget.
HM Treasury has published a consultation paper which is asking the investment industry for feedback on the new regulated crossover market. It would be designed to allow private companies to trade their securities in a controlled environment, on an intermittent basis, the government says.
When is a stockmarket not a stockmarket?
This project was previously referred to in government circles as the ‘intermittent trading venue’. It origingally saw the light as part of the projected Edinburgh Reforms of the UK financial services sector. It seems to be a plan to create more centralised trading venues for private companies, helping to get money moving around the economy.
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Here are five key takeways for investors still scratching their heads about Project PICSES:
PISCES is only a secondary market: The idea is that the market would not be used for capital raising. The City of London would still like companies to do that on the grown up stock exchanges. PISCES would be used for trading the existing shares of private companies through intermittent trading windows.
It’s a first for the UK and the world: There is no other market functioning like this in the world at the moment. There are currently no regulated, formal markets performing this private company secondary trading feature for investors.
The UK wants to boost the struggling IPO market: The government is known to be desperate to get private capital more actively involved in private businesses, and to resuscitate the London IPO market, which has been struggling recently for a number of reasons. PISCES is designed to help companies scale up at an earlier stage in their growth. Existing shareholders could also use the trading windows to sell shares pre-IPO.
PISCES platforms would be managed by investment firms: This will not be a central exchange model. The FCA would be using its ‘financial markets infrastructure’ sandbox model that would let companies apply for permission to run these intermittment trading events for private companies.
Only for unlisted shares: These facilities would only be available for unlisted companies, but overseas companies as well as UK companies could see their shares traded like this. The current proposed disclosure requirements look like they will be a lot lighter than for public companies.
But who can trade? This remains an interesting one: the government has not made its mind up yet, but PISCES is likely not going to be made available to retail investors, although self-certified sophisticated investors may be able to participate as well as high net worth investors. The government is working on the eligibility criteria which could make it easier for investors to access these deals when they emerge.
The FMI sandbox for PISCES is expected to go live at the end of 2024. Ahead of that, HM Treasury intends to lay before Parliament a statutory instrument providing the legal framework for the sandbox. The FCA also intends to consult on the processes for taking part in the sandbox and the FCA rules that would apply to firms within the sandbox, before the sandbox is established.
What we think
On paper this could be quite an interesting new way for investors to get in and out of private companies well before they IPO. We like the fact that overseas companies could also participate in these schemes. We continue to hear complaints from investors about limited allocations of shares outside institutions in the run up to IPOs, and PISCES could provide a venue to get into companies in hot sectors like tech and biotech well before they hit the public market.
