FCA consults on new regulated trading platform: PISCES
On 17th December, FCA published Consultation Paper CP24/29 on proposals for a new trading platform called the Private Intermittent Securities and Capital Exchange System (PISCES). PISCES aims to provide a bespoke regulatory framework for private secondary markets, an organised market for private securities, which allows for multilateral trading.
PISCES will operate as a secondary market, facilitating the trading of existing shares in intermittent trading windows (e.g. ad hoc, quarterly, biannually, yearly etc). It will use public market features such as multilateral trading, as well as private market features to give companies greater discretion over how and to whom their disclosures are distributed, when trading occurs, and which investors can participate in their trading events. Successful applicants to operate a PISCES are referred to as operators and the intention is that there are bespoke rules on disclosures, price parameters, permissioned trading event and notifications set out in the operator’s rulebook.
The regime aims to complement, rather than compete with, alternative trading venue services such as crowdfunding platforms and public markets. It is intended to connect existing shareholders wanting to sell shares (including employees) with a variety of buyers. These buyers will include institutions and retail participants who meet the criteria to be considered as sophisticated or high net worth investors (albeit platforms can distinguish on type of entrants into their market, so PISCES operators may decide to exclude retail investors to avoid Consumer Duty, certain aspects of it, and the detailed requirements on financial promotions etc).
Firms wishing to be authorised as PISCES operators will operate via a sandbox environment: the 'financial markets infrastructure (FMI) sandbox'. Firms can apply if it has permission to operate an OTF/MTF, or if it has permission to arrange (bring about) deals in investments. It should be noted however that the sandbox provides the FCA with draconian powers regarding the operation and ongoing provision of services for a PISCES operator. Firms will be provided with more information ‘early’ this year on the application process, but there is plenty to read through in the CP as preparation for those who may be interested.
It should be seen as a “private plus” approach to facilitating such transactions, with the onus (and liability) on companies whose securities would be traded via PISCES to produce relevant (correct and updated) disclosures for participants to make decisions with. The PISCES operator will be required to have appropriate disclosure arrangements for the efficient and effective functioning of its market.
The fundamental basis of the operation of PISCES is driven by disclosing “core information” from companies using the platform (alongside price parameters and any other disclosures the operator believes is relevant as dictated in the ‘manual’ - the FCA provide suggestions here). Given it is disclosure based, with the company responsible for the accuracy (not the operator) the regime is “buyer beware” with the “core information” loosely based on prospectus information but watered down sufficiently to be considered “private plus”.
Operators will have flexibility to design an individual, bespoke approach based on users, price parameters, frequency, additional disclosures and so on. There will no doubt be a heavy emphasis and focus on the operator’s rules and process for ‘monitoring’ of disclosures, which the FCA state should be proportionate and risk-based approach. The operator will not approve disclosures, but if the platform is intended to be “private plus”, given the importance of disclosures to the new regime, you would very much expect the FCA to require a “monitoring plus” approach by operators when considering how disclosures rules are complied with, even if approval is not definitely required.
As a quick summary of other salient points:
The CP sets out the detail on proposed approaches to setting price parameters, how permissioned trading events could work, and how public trading event notifications and transparency data rules are proposed to operate.
PISCES will not facilitate capital raising through the issuance of new shares.
PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax (much like the exemption for growth markets such as AIM and Aquis’ growth market)
Only shares in companies whose shares are not admitted to trading on a public market (in the UK or abroad) can be traded on PISCES. This includes UK private and public limited companies (PLCs) and overseas companies.
PISCES operators will determine any admission requirements for their markets, including any minimum corporate governance requirements.
Only institutional investors, employees of participating companies and investors who can meet the definition of high net-worth individuals and self-certified or certified sophisticated investors under the Financial Promotion Order (FPO), will be able to buy shares on PISCES.
Following feedback, the PISCES regime will not include a public market style market abuse regime.
PISCES operators (if not under a more stringent regime or already) would be subject to the rules and guidance in MIFIDPRU as they apply to an MTF, with authorisation fees set at Category 6 charge (currently £10,880).
There is a standalone sourcebook proposed for the PISCES sandbox that contains some new rules and guidance – the draft PISCES Sourcebook (PS) can be found in Appendix 1 of the paper.
The consultation closes on 17 February 2025 and the FCA will publish its final rules after HM Treasury has laid its final SI before Parliament (expected in May 2025). Get in touch if you’d like to discuss more.