The UK is set to usher in a new era for private company investment and liquidity with Tuesday’s launch of the FCA’s final rules for the Private Intermittent Securities and Capital Exchange System (PISCES). The FCA said trading can begin later this year.

Heralded by the government as a significant step to bolster UK capital markets, PISCES aims to bridge the gap between private and public markets, offering a regulated environment for trading shares in unlisted companies.

PISCES platforms will facilitate intermittent trading events for shares in private companies, “providing a crucial liquidity mechanism for existing investors, including employees and early backers, while opening doors for institutional and sophisticated investors to access high-growth private businesses,” said the regulator.

Easier share trading

The creation of PISCES directly addresses the growing trend of companies choosing to remain private for longer. This has historically presented challenges for shareholders seeking to realise their investments and for new investors looking to participate in the growth of successful private ventures. PISCES aims to solve this by creating an organized marketplace where shares can be bought and sold with greater ease and efficiency.

Companies utilizing PISCES will retain significant control over the trading process. They can set price floors and ceilings, dictate who can buy their shares, and manage information disclosure to maintain confidentiality while providing sufficient data for informed investment decisions. This flexibility is a key differentiator from traditional public markets, where regulatory burdens and disclosure requirements are far more extensive.

Access to PISCES will be limited to institutional investors, high-net-worth individuals, sophisticated investors and employees of participating companies.

Industry positive

Simon Walls, executive director of markets at the FCA, hailed PISCES as a “bold design” that “rebalances risk.” He emphasized its potential to grant investors “greater access and confidence to invest in exciting new companies” and enable early backers and employees to “sell up and invest again.”

Emma Reynolds, Economic Secretary to the Treasury, echoed this sentiment, highlighting PISCES as a testament to “industry, regulators and the government working together to go further and faster on innovative reforms.”

Industry commentators are largely welcoming of the initiative, viewing it as a pragmatic solution to a long-standing market inefficiency. “The FCA’s launch of PISCES marks a significant evolution in the UK’s capital markets infrastructure,” observed Hannah Meakin, a financial services partner at Norton Rose Fulbright. “By facilitating secondary trading of private company shares on a multilateral basis, it addresses a long-standing liquidity gap for growth companies and early investors.”

Jack Shepherd, a corporate partner with law firm CMS, said: “The LSE, the prime mover behind PISCES, should be commended for its innovation in trying something new to reinvigorate the UK’s capital markets.” However, he cautioned that the question remains, “whether PISCES addresses a genuine problem in the market, without cannibalizing companies that might otherwise have sought a listing on the Main Market or AIM.”

FMI sandbox

The FCA has confirmed that PISCES will operate within a “financial markets infrastructure (FMI) sandbox” until June 2030. This sandbox approach will allow the regulator to test the design and gather crucial insights before finalizing a permanent regime. During this period, trading systems could include periodic auctions, as well as occasional and time-limited periods of continuous trading. This iterative approach to regulation has been broadly praised for its adaptability in an evolving market.

Many industry experts are keen to observe the effectiveness of the regulatory framework within the upcoming sandbox period. “While the sandbox model allows for innovation, it also introduces a higher risk profile,” observed Meakin. Adding, “particularly as some public market protections, such as key parts of the market abuse regime, will not apply. The inclusion of a limited scope of retail investors, albeit with safeguards like the Consumer Duty and risk disclosures, adds a layer of complexity that will require careful monitoring.”

Future prospects

A significant incentive for companies and investors to utilize PISCES comes from the government’s commitment to favorable tax treatment. PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax. Furthermore, the government has announced it will legislate to ensure employees retain the tax advantages on eligible shares traded through PISCES, a move set to be particularly attractive for growth companies seeking to incentivise and retain talent through equity.

The first PISCES trading events are anticipated later this year, with firms now able to apply to the FCA to become PISCES operators. The outcome of the five-year sandbox period will be closely watched, as it will determine the long-term impact and potential for PISCES to fundamentally reshape the landscape of private company finance in the UK. The UK government hopes that PISCES will not only unlock capital investment and liquidity but also serve as a vital stepping stone for successful private companies on their journey towards public listing.

“This initiative reflects a broader regulatory trend – balancing innovation and investor protection to support UK economic growth,” said Meakin. It is a unique model incorporating aspects of both private and public markets, but its success will depend on how well the regime manages the risks while delivering on its promise of greater access and liquidity.”