On March 6, 2024, the UK Government published a consultation relating to a new type of share trading platform, referred to as a “Private Intermittent Securities and Exchange System” or “PISCES”. This was first discussed in 2022 as part of the so-called Edinburgh Reforms and is a significant development in the UK capital markets. This article outlines 10 key points in the consultation.

1. What is PISCES?

A PISCES is a platform for secondary trading in freely transferable shares issued by UK or non-UK companies that are not admitted to trading on a public market in the UK or abroad. An initial offering of shares cannot take place on a PISCES. Only shares can be traded on a PISCES and other financial instruments, such as bonds, are not able to trade on a PISCES. The government does not currently envisage that share buybacks will be permitted on a PISCES.

2. Who can apply to operate a PISCES?

FCA-authorized firms that want to operate a PISCES will need to apply to the FCA to join the financial market infrastructure sandbox that will be developed for these purposes (the PISCES Sandbox). Authorized firms wishing to apply must have FCA permission to arrange deals in investments, operate a multilateral trading facility/organized trading facility or have recognized investment exchange status. 

While there will be further legislation and an FCA consultation on the PISCES Sandbox, it is expected to launch by the end of 2024. The current expected duration of the sandbox is five years, although this will be confirmed by the Treasury.

3. What type of companies can have their shares traded on a PISCES?

The Government does not currently envisage imposing any admission requirements. Similar to existing exchanges and trading venues, a PISCES operator will instead be able to set their own admission requirements for companies wishing to have their shares traded on a PISCES.

4. Who can become members and trade on a PISCES?

The current intention is that only institutional and professional investors, such as pension funds and private equity firms, would be able to buy shares on a PISCES (including where they act as intermediaries for the end investor). While general retail investors will not be able to buy shares on a PISCES, the UK Government will consider whether sophisticated and high net worth retail investors should have access, along with employees of the companies that have shares traded on a PISCES. Participating companies may also place investor restrictions to retain control of the types of investor that may be able to buy shares through a PISCES. 

5. How will trading take place on a PISCES?

Trading will take place during intermittent “trading windows”. PISCES operators and companies will have the flexibility to decide the length between trading windows (for example weekly, monthly, biannually, etc.) as well as the duration of each trading window.

During these windows, trading would take place on an auction basis. A PISCES operator will have flexibility to determine how such trading will take place including minimum and maximum execution sizes for a trading window and any pricing parameters (a floor and ceiling trade price).

6. Which regulatory requirements will apply to a PISCES operator?

Due to the unique features of a PISCES, a bespoke regulatory regime will be developed. In the sandbox, the Government will test a tailored regime for PISCES including, for example, in relation to the market abuse regime. It is envisaged that the regulatory requirements will draw on the current regime that applies to trading venues and adapted where necessary (for example, the disclosure requirements would take into account that trading takes place intermittently rather than on a more frequent basis).

7. What information will companies need to disclose?

Disclosure requirements will be different to public markets, in that the disclosures will be intermittent, only taking place immediately before and after a trading event. As a minimum, it is currently envisaged these disclosures will include all inside information, information on share ownership, information on transactions by the participant company’s senior managers, any pricing parameters and trading restrictions.

8. Who will have access to company information on a PISCES?

Unlike public markets, PISCES operators will be permitted to establish a “private perimeter” whereby detailed company disclosures and pre and post-trade data are only required to be made available to eligible investors participating on the PISCES and not disseminated publicly. The PISCES operator would determine the appropriate recourse for participant companies should anyone share information outside of the private perimeter in contravention of any contractual arrangement with the operator.

9. How will settlement work?

The Government proposes that PISCES operators retain the choice on whether to mandate that shares are placed into a Central Securities Depositary (CSD) as part of a company’s admission process onto their platform. This should allow PISCES operators to take a position based on commercial reasons, balancing the potential costs for a company to have its shares settled on a CSD against the efficiency of trade settlements to attract potential investors.

10. What are the next steps?

The consultation is open until April 17, 2024. The Treasury then intends to lay a statutory instrument before Parliament later this year, which will provide the legal framework for the PISCES Sandbox. The FCA also intends to consult on the processes for applications to take part in the sandbox and the FCA rules that will apply to firms within the sandbox, before the sandbox is established at the end of 2024.