HM Treasury has confirmed its plans to proceed with the Private Intermittent Securities and Capital Exchange System (PISCES), in its response to a consultation launched under the previous Government. In her Mansion House speech on 14 November, the Chancellor said that the Government was committed to legislating to establish PISCES as "an innovative new stock market" by May 2025 to "support companies to scale and grow".
Features of PISCES
HM Treasury's consultation on the proposal ran from 6 March to 17 April 2024. Mishcon responded to the consultation both on our own behalf and through our membership of the Quoted Companies Alliance's legal expert committee. Broadly, the response document confirms the Government's intention to proceed in line with the previous Government's proposals, although some of the issues we highlighted in our response will require further consultation to resolve.
- Secondary market only: PISCES will operate as a secondary market, facilitating trading of existing shares in intermittent trading windows (e.g. ad hoc, quarterly, biannually, yearly) and will not facilitate capital raising through the issue of new shares. PISCES operators will be able to decide whether shares must be recorded in a Central Securities Depository (CSD).
- Who will be able to trade? The Government has confirmed that institutional investors, employees of participating companies (or companies in the immediate corporate group of participant companies, where their employment is connected to the participant company's business) and high net worth or sophisticated investors (under the Financial Promotion Order 2005 (FPO)) will be able to buy shares. PISCES operators will be able to market their platform only to particular categories of investors and, as expected, companies will be able to restrict their shares to particular types of investors.
- Intermediated model: while the Government and the FCA plan to ensure that PISCES could operate on either a intermediated or non-intermediated model, the bespoke regulatory framework that will be applicable to PISCES will be modified versions of obligations that apply to regulated markets and multi-lateral trading facility venues and assumes an intermediated model (where investors place orders via a member firm, rather than directly with the venue operator).
- Classes of shares and free transferability: the Government's response confirms that companies will be able to have different classes of shares admitted to a trading event on PISCES and will not be prevented from only having certain classes traded on a platform. Traded shares will be expected to be free of restrictions affecting transfer.
- Stamp taxes and PAYE: as we mentioned in a previous briefing this month, PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax (in line with the existing AIM exemption).
- Buybacks will not be permitted: companies will not be able to carry out buybacks on PISCES, at least initially. The Government may explore this ability at a later stage.
- Takeover Code: as confirmed by the Takeover Panel on 6 November, the Takeover Code will not apply to a company solely by virtue of its securities being admitted to trading on PISCES: see our briefing: Scope of the Takeover Code to be narrowed.
Changes to March proposals
Some changes to the March consultation proposals have been made, most significantly in relation to the previously proposed market abuse regime.
- Market abuse and disclosure: in response to feedback, the PISCES regime will not include a public market-style market abuse regime. Instead, the FCA will be given rule-making powers to create a new and bespoke disclosure regime for PISCES. Disclosures and pre- and post-trade transparency will need to be shared with all investors participating in a PISCES trading event but will not be required to be made public.
- Transaction reporting requirements: because there will be no market abuse regime, there will also not be transaction reporting requirements for PISCES. The FCA will consider whether to set rules relating to recording-keeping to support their supervision of the market.
- Financial promotion exemption: there will be a new FPO exemption to cover PISCES disclosures, based on the exemptions available for promotions included in mandated public market disclosures.
When will PISCES platforms be up and running?
HM Treasury has published a draft statutory instrument alongside its consultation response and has asked for comments by 9 January 2025. Subject to feedback on this draft, the intention is to introduce the legislation by May 2025.
The FCA will also publish a separate consultation on its proposed rules for PISCES "in due course". Once those rules are finalised, the PISCES Sandbox will be able to be opened for applications.
A number of the issues identified in responses to the Government's consultation are yet to be resolved. Some of these, including creating a new bespoke disclosure regime for PISCES, will need to be considered as part of the FCA's consultation. While the Government has committed to "legislate" for PISCES by May 2025, it is not yet clear how soon after that PISCES platforms will actually be up and running.
In the employee share plan context, as we discussed in a previous briefing, PISCES might ultimately provide a liquidity solution for some companies to allow senior management and employees to unlock cash value from equity incentives at an appropriate point in time. Until PISCES platforms are operating, however, those seeking liquidity solutions will need to continue to look to options such as employee benefit trusts (EBTs).