The beginning of April has seen updates from both the FCA and the London Stock Exchange which shed more light on the direction of travel of the UK's public and private markets. The FCA has published an update on how feedback received will shape its final rules for the Private Intermittent Securities and Capital Exchange System (PISCES), while the LSE is seeking views on the continued development of AIM, including proposed changes to the AIM Rules.
PISCES update from the FCA
In December last year, the FCA set out its draft regulatory framework for PISCES, a new type of trading platform that enables intermittent trading of private company shares. While the FCA's response to that consultation is yet to come, the FCA has published an "early update" to help future PISCES operators work up their plans.
While the FCA does not intend to make material changes to its original proposals (for details, see our January briefing: PISCES: FCA consults on rules for regulated trading platforms for private companies), it does intend to make some changes in response to feedback that PISCES should be more fully aligned with private market practice. Some of the key changes to the original proposals include those highlighted below.
- Lighter core disclosure: the FCA had proposed that PISCES operators be required to include in their rules a requirement that companies must disclose a set of "core information", intended to provide a standardised set of information for private companies to disclose which investors would typically expect to receive in an M&A transaction. This would have included forecasts of financial information for at least 12 months. The FCA now intends to remove the forward looking information element, along with sustainability and litigation disclosures.
- Clarity on employee share scheme disclosures: the final rules will set out more clearly the FCA's expectation that disclosures must include information as to any rights to acquire shares; future commitments to issue new shares to satisfy awards granted; and any future commitments to fund an employee benefit trust (to identify rights, dilution and liability risks).
- Major shareholder disclosures: PISCES operators will be given the discretion to set a threshold of up to 25% for identifying major shareholders. Where the chosen threshold is 25%, PISCES operators could require PISCES companies to meet the obligation by disclosing their Companies Act People with Significant Control Register.
- Permissioned trading events: the FCA will set out more clearly that a PISCES company may restrict an intermediary from participating in one of its trading events, as long as any restriction is based on published, transparent and non-discriminatory rules.
The changes that the FCA has signposted, in particular in relation to the PISCES disclosure regime, appear designed to alleviate concerns that an overly burdensome regulatory framework might discourage some companies from trading their shares on a PISCES platform.
Shaping the future of AIM
In the same week that the FCA published its PISCES update, the LSE published Discussion Paper: Shaping the Future of AIM. The paper seeks feedback on the overall functioning and positioning of AIM along with input into a number of specific proposals for changes to the AIM Rules.
The LSE describes working to build a "seamless funding continuum" with a central role for AIM and acknowledges concerns and commentary to the effect that PISCES could detract from AIM's role. The LSE believes that the opposite is true, stressing that PISCES is not designed as a small-cap venue or primary market, but specifically to relieve the pressure for secondary liquidity, particularly in mid-sized and later stage private businesses. The hope is that while some PISCES companies may choose not to IPO, the ability to create liquidity for founders and early stage investors should make it easier for those who do go public and to do so at the right time.
As well as seeking more general feedback on the overall market framework of AIM and its regulatory design, including the role of nomads, the discussion paper seeks engagement on the evolution of the AIM Rules, including in the areas below.
- AIM admission documents: the LSE seeks views on the content of the admission document and in particular whether a simplified admission document should be offered as an alternative, allowing incorporation of information by reference.
- Working capital statements: the paper notes that the FCA's changes for Main Market companies last year (see our separate briefing: A new era for London Listings) mean that Main Market admission no longer requires a "clean" working capital statement. Instead, reliance is placed on the Prospectus Regulation Rules, which require working capital disclosure but allow for qualified statements. The LSE is considering replicating this approach but also considering alternative approaches, including a requirement for the directors to confirm that they have "no reason to believe" that the working capital available will be insufficient for at least 12 months from admission.
- Reverse takeovers: the LSE is seeking feedback as to whether an admission document could be dispensed with in circumstances where, for example, a company is acquiring a company larger than itself but there is no fundamental change in business.
- Second line of securities: the LSE feels that there is limited benefit in requiring the publication of an admission document for the admission of a second line of securities and proposes removing this requirement.
- Dual class share structures: the LSE believes that, in line with the new approach of the Main Market, the admission to AIM of shares with weighted voting rights, or dual-class shares, is appropriate given the need for many founders of growth companies to retain control of a company.
- Class tests: the LSE would like to take the opportunity to update the class tests that determine whether disclosure is required for a substantial transaction. For example, the Main Market threshold is 25% and so 25% may be more appropriate for AIM too, instead of the current 10% threshold.
Next steps
The FCA will publish its final set of rules after HM Treasury has laid its final statutory instrument creating the PISCES sandbox before Parliament, which is expected to be by May 2025. In the meantime, the FCA is welcoming requests from prospective PISCES operators for the FCA to provide preliminary feedback on proposed operating models and draft rulebooks.
AIM Regulation is seeking responses to its discussion paper on or before 16 June 2025; any proposed changes to the AIM Rulebooks will then be put forward for market consultation.