New markets for private company shares: the PISCES sandbox is confirmed

In a move intended to support growing companies by enabling trading in their shares, the government has published draft legislation to establish the Private Intermittent Securities and Capital Exchange System (PISCES). The Chancellor confirmed the plans for the new share trading market in her Mansion House speech on 14 November 2024 (see our briefing here).

Alongside the draft rules, the HM Treasury has published feedback on its consultation on the proposed regulatory requirements of PISCES (see here) which closed in April this year. The rules are to be made under the financial markets infrastructure sandbox procedure, which facilitates innovation in financial regulation by enabling primary legislation to be amended on a trial basis. 

Who will be permitted to trade on PISCES?

Unlisted UK and overseas companies

PISCES will operate as a secondary market for trading existing shares only. Private and public companies (incorporated in the UK or overseas), whose shares are not admitted to trading on a public market in the UK or abroad will be able to have their shares traded on a PISCES market. No further admission criteria are set out in the draft SI, but a PISCES operator will be free to impose other requirements, such as minimum corporate governance standards, as a condition of admission. 

The shares to be traded must be freely transferable at the time of a PISCES trading event so companies will need to think about any restrictions contained in their articles, shareholders’ agreements or other arrangements.

The trading on PISCES will be intermittent, taking place during “trading windows” which can take place ad hoc, monthly, quarterly or annually, as the company chooses, subject to the rules of the PISCES operator.

Companies whose shares are traded will have to publish information as discussed under “Disclosure requirements” below. 

Professional and certain retail Investors

During the sandbox trial, broadly speaking, the following investors will be allowed to buy and sell shares on PISCES:

• those who meet the definition of self-certified sophisticated investors, certified sophisticated investors, and high net-worth investors in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO);
• employees of the participant company; and
• employees of companies in the immediate corporate group of the participant company, where their employment is connected to the participant company’s business.

However, PISCES operators will be able to restrict participation in their market to particular types of eligible investors and allow companies to restrict sales in their shares to particular investor types such as professional investors.

It will be the responsibility of those taking orders to place trades on PISCES to ‘believe on reasonable grounds’ (as set out in the FPO) that an investor meets the eligibility criteria. With regard to employees, the consultation response states that the person taking the order may rely on a list of employees supplied by the company to confirm their eligibility to participate in their company’s PISCES trading event.

PISCES operators – detailed provisions to be subject to FCA consultation

Firms with Financial Services and Markets Act 2000 Part 4A permissions for arranging deals in investments, operating an MTF, OTF, or which are a recognised investment exchange, can put themselves forward to participate in the PISCES Sandbox. 

The FCA will consult on the detailed requirements that will apply to PISCES operators.

Disclosure requirements for PISCES companies

The HMT consultation earlier this year proposed a pre-and-post trading disclosure regime that would have required participant companies to disclose all inside information (as defined in the UK Market Abuse Regulation) alongside other information on share ownership and significant transactions, transactions by senior managers and information on pricing and trading permissions.

Following feedback, HMT has decided that this approach would be too onerous and costly for PISCES companies. Instead, power will be delegated to the FCA to formulate a new and bespoke disclosure regime, on which it will consult. Pre-and-post trading disclosure will still be required to be made available to investors participating in a specific trading event but will not have to be publicly disseminated. 

In terms of the liability for PISCES disclosure, companies will be liable to investors on a negligence basis for information which is “more certain”, such as past financial information, but will be subject to a recklessness standard in relation to information, such as forward-looking information, which is inherently uncertain. This aligns with the approach to be taken to prospectus disclosure on the Main Market, under the Public Offer and Admission to Trading Regulations 2024 (see here).

The FCA will consult on detailed requirements related to pre-and-post trade transparency requirements for PISCES.

The FCA will retain its role in enforcing the criminal market abuse regime as it applies to PISCES but in relation to a MAR-like civil market abuse regime, the FCA will be given rule-making powers and will consult on rules to prevent and detect manipulative and abusive activities. The consultation response states that it will specifically consider and consult on measures giving more responsibility to PISCES operators to prevent abusive behaviour on their platforms.

Next Steps

HMT is open to feedback on the draft statutory instrument by 9 January 2025 and, subject to the feedback received, it intends to finalise the legislation by May 2025.

The FCA has been tasked with developing rules in a number of areas and these will need to be published for consultation. The consultation response does not give an indication of timing in this respect but it could follow soon, if the FCA also plans to aim for a May 2025 deadline. 

Once established, the PISCES sandbox will last for five years to test the calibration of proposed regulatory requirements, before they are made permanent. 

Related material

For our briefing on the reforms proposed to the defined benefit pension market, also set out by the Chancellor in her Mansion House speech, see here.