Arthur Horsfall, Associate
Mishcon de Reya
Thanks everyone for joining. Hello and welcome to the Mishcon Academy session, I’m Arthur Horsfall, a corporate associate and I’m joined by my colleague Liz Hunter, a partner in the Incentives team. The previous Government has this year presented plans to establish a Private Intermittent Securities and Capital Exchange System, or PISCES for short. In response to this exciting new initiative Mishcon de Reya has established a PISCES group to respond to The Treasury’s consultation paper which ran from March to April this year.
We’re joined today by Marcus Stuttard, Head of UK Primary Markets and AIM at the London Stock Exchange group, who has responsibility for primary markets in the UK across both AIM and the main market. Marcus is responsible for the management and development of the London Stock Exchange’s international growth market for small and medium sized enterprises. Prior to his appointment as Head of AIM in 2009, Marcus had a variety of roles within AIM and the London Stock Exchange, mainly focussed on primary markets’ development and the management of the London Stock Exchange’s relationships with the corporate advisory community, including nominated advisors, sponsors, lawyers and accountants in the UK and overseas. He joined the London Stock Exchange in 1994 following his completion of the legal practice course. We will discuss the PISCES platform in further details in this conversation but as a brief summary, a PISCES, a PISCES because there potentially is multiple platforms, to the proposed trading platform which will provide shareholders private and not public companies a secondary market to trade their securities to new and existing stakeholders on an intermittent basis.
Liz, do you want to… first question.
Liz Hunter, Partner
Mishcon de Reya
Sure. Marcus, thanks for joining us. We’ve been fortunate to be engaging with the London Stock Exchange Group for quite a while on the opportunities and let’s be honest, some hurdles and challenges around the introduction of PISCES. Could you perhaps explain a bit more about LSEG’s role and how this sits within the wider capital markets reform at Mansion House.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Yeah, sure. And it’s great to be here today. But, I, I and I think it is important to think about PISCES as part of that broader package of reforms which you know really is quite unprecedented in the UK so my CEO, Julia Hoggett, some of you may have heard her refer to this whole package as sort of the five fingers and a glove and the reason that she came up with that analogy is because it is so comprehensive, I think a lot of people were like “Okay so this is going on and that’s going on, how does it all fit together?” and you know those sort of five fingers include the recent rewrite of the main market listing rules which we come on to talk a little bit about later, the reform of corporate governance and sort of re-instilling that sort of comply or explain mentality in the UK so there’s the sort of that bit on the company side and then the you know FRC’s review of the stewardship code on the investor side and then there’s the reform of pension funds, you know it’s been discussed very, very widely in the UK how you know our pension funds have reduced their allocation to equities over the last sort of 25 years and particularly to UK equities having gone from a sort of 50% holding in their portfolios 25 years ago to now, you know, quite a bit less than 5% so, you know that has been a big sort of de-equitisation and you know to a certain extent that’s been a global trend but I think you know our UK institutions have gone further and faster than many other globally and are significantly under invested in the domestic economy and that’s obviously where the Mansion House compact comes in which is the sort of voluntary compact from now the eleven biggest funds to allocate up to 5% of their funds into private companies by 2030 and in that definition of private that would include companies on growth markets sort of such as AIM. So, the access to capital and the pensions piece is you know is clearly a key pillar and then you know you’ve got the, the review of equity research and making information on companies more freely available and I think the sort of link to that is the whole inclusion, inclusion of retail investors into our markets and then you know PISCES as a crossover market is the sort of the fifth finger or the fifth leg in that and then the glove is very much around you know the culture and I think you know on a number of levels, you know people have either just sort of over recent years and particularly since the financial crisis talked about you know capital markets in terms of you know pure data, the amount of money raised, the number of IPOs, the size of bank and bonuses rather than talking about actually the very direct impact of capital going into companies creating you know higher quality jobs, more innovation and the impact that has you know on all of us around the world both in terms of our jobs and prospects but also you know the wealth of the country and you know our ability to save and have pensions for the long term so, you know PISCES fits very much within that whole sort of reform package which is something that we and many others have been really sort of pushing on and it’s, and it’s easy to actually under, underestimate the amount of progress that’s been made on you know each of those pillars. So, that’s very much the reform package, you know I mean PISCES is a very important part of that and I, do you want me to say a little bit more about that now or come on and talk about that in the next question?
Liz Hunter, Partner
Mishcon de Reya
Well, as you mentioned kind of access to capital, PISCES is intended to be a secondary market for primary fundraising and it’s not intended to replace AIM so could you perhaps explain a little bit more about how it is intended it might fit alongside concurrently the other market.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Sure. And I think that’s a really, it’s a really important point as well. So, in the UK you know as Arthur mentioned, you know I head up UK Primary Markets and so I have a regional team, you know based in Scotland, the Midlands, London, the South and we spend a lot of time engaging not only with our existing AIM and listed company clients but also with private companies and sometimes that can be a short time ahead of an IPO but then in other cases actually, you know I could think of relationships we’ve had for almost a decade with some companies and others, you know you see those companies grow and raise capital, you know one of the things that we really want to achieve in the UK is that companies you know can start, scale, grow and stay in the UK and I think, you know, one of the challenges that we’ve had in the UK for some time is, is around actually primary access to capital and companies at the sort of the C, the D round quite often looking overseas for capital and then often ending up gravitating towards where that capital has come from. But also, you know we regularly come across companies that end up either doing primary capital raising transactions that sometimes they don’t need to but just set you know a reference sort of benchmark valuation or in the worst cases, we see companies being sold too early because they need to provide liquidity either to founder shareholders and that could be angels, it could be founders, friends, VCs or it could be employees and so the liquidity aspect of the, of the primary capital and the funding continuum is really important and you know what we’re trying to do with PISCES is provide much better access to liquidity that means that companies can continue on their growth journey and they don’t get put under pressure by early stage investors or founders or employees to do a transaction because of this pressing need for liquidity but also you know if you bear in mind the rest of the reform package and pension fund reform and you know the Mansion House compact, you know we know that institutions want earlier access to, to private companies but they want that access in a way that gives them more transparent and more consistent disclosure and that gives them not a guarantee but more optionality and certainty around liquidity. So, you know, we very much hope that the creation of PISCES will help from a company perspective but it will also you know crowd in a broader range of investors and we might come to talk about the sort of investor base a little bit later. And whilst providing liquidity to private companies is the primary driver, you know we do also see the benefit of companies being on a PISCES platform and getting into a more regular cadence of reporting of you know managing a broader set of investors and then the transition for those companies that want to move onto the public markets, whether that’s AIM or the main market, that transition should be easier, you know they will have been making more regular disclosures, they will have been talking to their investors and so it should just be a more, and also you know if they’ve got a broader range of sort of crossover or institutional investors on the cap table, that transition should be easier but you know we recognise that you know as the pool of private capital gets deeper and deeper, there are many companies in the UK and internationally that might never want to go onto the public markets and might actually just benefit from staying on a PISCES venue so we’re trying to provide that broadest range of options really.
Arthur Horsfall, Associate
Mishcon de Reya
Yes, it’s that whole package of kind of making it simpler, making it more attractive but also giving them that experience, as you said, disclosures that then allows them to decide to make that jump as we’ve seen that there’s been an increase in IPOs happening so the market is picking up in that, in that regard and this is just giving that extra bit of experience I guess to private companies to…
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
That’s right. And look I’m always really conscious in these kind of conversations where you know we’re talking about reform and you know the need to change things that actually you know your point about transactions happening can sometimes sort of get lost in the mix and you know, you’re right, we’ve had you know over £20 billion raised in London so far this year and that was sort of in the first half, more capital was raised than in the whole of last year, you know we’ve had ten IPOs which is a lower level than you know we aim for and that we would like but we are seeing those IPOs happening and the split is you know, it’s equal, it’s 50% on AIM, 50% on the main markets and it’s sort of not lost on me that three of our first IPOs onto AIM this year have been North American companies you know coming in this direction which is counter the sort of the popular and inaccurate narrative of UK companies going in the other direction and the performance of those businesses, you know, there are a number of companies that are up more than 100% on their IPO price you know in the sort of further capital raising market, we’re seeing you know some very sizeable transactions that demonstrate the availability of capital and also, you know we’ve seen some sell downs, including in LSEG stock where the sort of Blackstone private equity consortium sold down you know some big chunk of shares at a premium. We saw the Pfizer sell down in Haleon stock which is important in this context because it shows the public markets supporting sell downs by private equity and that whole funding continuum actually working.
Liz Hunter, Partner
Mishcon de Reya
So, we’ve obviously got a pending consultation, we can’t in any way predict the outcome of that. Mishcon did respond to the consultation. A timeline for implementing this innovative new platform was, let’s be honest, always ambitious, we have since had an election, a change of Government from that had originally made the proposal. Has perhaps that transition, given time, as well as hiatus around regulatory matters, but time to think through more of the practicalities of putting this in place, there will be some benefits from having that sandbox phase, not entirely a kind of a beta test pilot but something that allows refinement and evolution to get things up and running efficiently. What do you feel is crucial to be getting right for the platform to be successful at the outset?
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
So, first of all, sort of on the timetable, we were sort of saying earlier this is one of those projects that sounds so simple, you know, the idea is that you provide liquidity, periodic liquidity for private companies, job done. And then you know as soon as you start digging beneath the surface, it becomes complicated you know quite quickly and the whole concept of PISCES and previously known as the intermittent trading venue, came out of a couple of sentences in the wholesale markets review when the Treasury published three years ago now and in the period since those couple of sentences, you know we and Treasury and FCA have consulted really broadly on a sort of an informal basis prior to the consultation document formally being published with you know potential companies, with the investment community, with private equity, with venture capital to really understand what the challenge is and the opportunity is and so, when the consultation document was published early this year, although you know we spoke to a broad range of stakeholders, it was actually, it was really positive to see how much progress had already been made, you know because you know you will all be a lot more familiar than I am with you know the fact that our legislation envisages you know private companies or it envisages public markets. The concept of the crossover just doesn’t exist in our legislation or in legislation really anywhere else in the world and you know we said from the outset to Government, look we think there’s a real opportunity here but if we’re going to do this, we need to do it with a regulatory framework that provides proper underpinnings and some certainty and so, you know, we weren’t asking for sort of you know sort of regulatory allegiances around the Companies Act, we wanted a proper framework and that’s what makes this a kind of a global first, you know, I think. But it is, it is complicated so, when the consultation document was published, you know whilst we had engaged quite broadly, you know it was the first time that people really saw all of the key building blocks laid out in one place and the sort of the parameters that you know this would be a secondary liquidity venue, it wouldn’t be a primary venue that you know it would be open to you know professional investors and that there would be you know a number of sort of core features and that really allowed people to sort of get their teeth into the detail and really start thinking about some of the practicalities and so I think actually it was really helpful that that happened prior to the election and then over that quieter period, you know FCA and Treasury had the opportunity to really you know think about the, you know the very comprehensive responses that they received and I think some of the key areas were very much around the disclosure framework, you know I think you know the original proposal was for sort of a, a MAR, or a market abuse regulation light type of environment which you know I think public market practitioners sort of understand the concept of MAR but you know if you’re a private market practitioner, you know it’s like hang on, MAR what? You know, so you know I think it’s enabled you know everyone to sort of really take a step back and to test what’s being proposed. Throughout the whole evolution of PISCES though, there’s been a, a sort of core philosophy and that philosophy has been that we would look at the construct, not as sort of public markets down, i.e, let’s take the public markets framework and just take a few rules out here and there but it should be the way around which is let’s embody what happens currently in private markets and add to that, and whilst that can sound like quite a semantic sort of construct, actually, it’s quite a big difference if you look at it through private markets up because what we’re trying to do with PISCES and this, I know it’s been a long time to get to the answer to your specific question, but the whole point of the PISCES regulation and framework should be that we allow companies to continue to operate as private companies but with additional and enhanced disclosure in the run up to auctions and the company is at the centre of this framework so, there are platforms out there globally that facilitate the secondary trading of shares but typically, they are bilateral trades between investors where the company is not at the centre of the disclosure, in fact quite often there is no disclosure at all and the company has very little control over timing of around valuation and so that can lead companies sort of feeling that they’re a little bit out of control that you know if a large investor or capital investors do a bilateral trade, you know that might be a significant discount, you know often 40%, 50%, 60% the last sort of perceived valuation of that company that that you know they’ve then got a lot to do to sort of justify why you know they think their valuation is different to the price at which that trade takes place. So, PISCES put the company back in control over timing disclosure and you know with the ability to sort of set the parameters for trading. So, quite a lot in there but you know our goal is really to make sure that the company is very much at the centre and that we retain a lot of market practice that exists in private markets rather than sort of making companies go through a whole range of additional process or disclosure.
Arthur Horsfall, Associate
Mishcon de Reya
Yes, on the flip side of that there is the regulation as well around the PISCES platform so, giving investors that confidence in PISCES traded shares.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Absolutely. And you know with any market, with any venue, you’ve got to have that balance, you know whether it’s public markets, whether it’s private markets, you can’t have things that are tilted just in favour of either investors or corporates so, a lot of the conversations you know over the last three years have been about where, how do you get that equilibrium, how do you get that balance but actually on a number of the core concepts, you know particularly around sort of you know the, being able to set the trading parameters and the volumes, actually existing investors and companies are in complete alignment there.
Arthur Horsfall, Associate
Mishcon de Reya
So, alongside the consultation paper, the Mishcon working group have been running their own survey which is still available online if anyone online would like to participate in it and I think the link will be available on LinkedIn as well. And we’ve seen that just generally that the interest is very high in the, a PISCES platform, however we, I think we spoke about this, understanding what the PISCES platform might be initially and who it might be relevant to, both companies and investors, and who do you see being able to participate on it and probably more importantly, the kind of shareholder base for those companies. I appreciate this might change as PISCES evolves.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
So, I mean, what’s been really fascinating and actually really rewarding over the, you know the last couple of years, is just seeing the number of use cases for PISCES platforms to just continue to evolve and develop. I think you know when there was the sort of the initial sort of transparency that you know some kind of an intermittent trading venue was being developed, but at that point there wasn’t very much detail about what the framework would look like and you know how PISCES operators would operate their venues. There was, that created uncertainty and you know and I think you know some of the larger companies that we’re talking to sort of thought ooh is this quasi-public market and some of the smaller companies and the smaller investors you know were sort of thinking well is this you know only for larger companies. What is really coming through though is that across the, that funding continuum or the size sort of spectra or the you know the stages of growth the companies are at, this need for liquidity is a real need and you know the number of companies that have come forward and have said actually this is really interesting, we’re already operating sort of processes internally for employees to have access to liquidity and it’s taking us an awful lot of time and it’s sucking up board time and the board are, you know, using Excel spreadsheets to try and manage the volumes and the price and the frequency and equally, you know the number of private equity houses that have come forward and have said you know actually we are you know hiring people to try and manage our secondary trades, they’re really clunky, the paperwork that’s involved, you know is an administrative overheard, you know if we could simplify and provide some infrastructure and really importantly, you know really broaden out the range of, or the access to the range of investors that you know the kind of infrastructure that we provide in public markets will end up providing for you know our PISCES venue, you know that would be really helpful. So, you know, we can see a real spread of use cases for PISCES. I think though, it’s probably going to be important in the, in the initial stages that you know some of the first movers probably are at the larger end of the spectrum where you know they’ve, they’ve probably got a bit more capacity as we’re sort of in a way testing the sort of the processes that they’ve got the capacity you know with their advisors to you know work out what they need to do and you know where they might need to make changes to the articles and that being larger and potentially with sort of for the shareholder registers already that there is the greatest sort of likelihood of liquidity and investor interest but you know we don’t see this over time being focussed just on you know one narrow bit of the market, we think you know there’s a really broad applicability here.
Liz Hunter, Partner
Mishcon de Reya
It is hugely complex, obviously has starting to gain a lot of, a lot of interest. What have been the particular challenges for LSEG and what are the key milestones yet to be met before we get to a fully operating exchange because the original timetable was end of this calendar year but they’re not going meet that, it’s going to stray off so what, what’s yet to do?
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Yeah, so, you know there’s a big communication and education exercise actually because you know I think one of the other things that has become really clear as PISCES has continued to develop and evolve is that you know even within some of the banks and you know the institutions that will be interested in this let alone you know some of the investors, actually whilst they’ve quite often got teams focussed on private companies and on equity capital markets, quite often the linkage between those teams isn’t what you know we might all envisage it is and so, yeah, I think one of the really sort of valuable elements of PISCES is that over time it should bring those teams together and in doing so actually it really helped to join up that fund continuum which is the ultimate goal so, I think you know explaining what PISCES is, what it isn’t, the education, being clear about the, you know the regulation tax, you know there’s still a fair amount of work to be done but beyond the regulation, you know this really is you know an all encompassing sort of project you know it’ll be the first time that you know rather than you know producing admission documents or prospectuses that we, you know, we’re making use of, of a disclosure portal and the technology that will underpin that and that you know whilst the sort of the core trading technology and the use of options, you know we run options across our stocks every day but you know extending that out over a day and you know getting people to focus on you know a day’s auction, you know there’s a lot of education to be done there but I think, I’ll just go back to a point I made earlier that you know what we really want to do is make sure that this is private markets up and it enhances what already exists in private markets rather than this actually being or being perceived as just a public markets with a few tweaks here and there.
Arthur Horsfall, Associate
Mishcon de Reya
That’s great. So, I think we’ve touched on it already but from our response to the consultation paper, there are a lot of unknowns still and we don’t in any way want to kind of pre-empt the outcome of the consultation but be keen to get LSEG’s view and how they’re considering a few points that we raised in our response to the consultation paper. The first one is regarding share classes on PISCES and so we understand that they will need to be freely transferrable and must not be admitted to another trading platform. So, we just, interesting to hear if should companies if thinking right now about review their share class structure, putting in new articles of association and do you envisage there being a model PISCES set of articles and association that companies might adopt to allow for the shares on a PISCES?
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
So, on the sort of last point first, you know I mean, I think there may well be market practices including sort of clauses to articles that become industry standard and actually some of those you know already exist and you know the BBCA has you know a number of you know model contracts and terms and clauses so, you know yes, we would envisage that, whether you know I mean I don’t think we necessarily envisage you know mandating that, I think the whole sort of framework of PISCES is you know hopefully going to be you know very close to sort of a caveat emptor model rather than a very sort of prescriptive, regulatory model so kind of going back to the point you know I’ve made now a number of times about sort of private markets up, but yeah you know I mean I think in addition to you know what the, the consultation from you know Treasury SEA says and our market operator rules, we would certainly see market practice and guidance sort of developing, in the way that it has you know around existing public and fully private markets. So that was the first point, the second point. The point was, was around free transferability check and you see, you get a, and I’ll stop referring to it because you’ll get bored of me sort of talking about private markets up but it’s really clear that one of the big differences between private and public markets is that private companies do have much more complicated cap tables and capital structures and we don’t want to enforce on companies that you know only, that they can only have ordinary shares and it’ll only be the ordinary shares that are traded on PISCES venues so we absolutely want to be able to accommodate more complicated cap tables and do envisage that there will be the flexibility and the functionality to be able to trade non-ordinary shares to reflect those more complicated cap structures. I think though, you know it’s becoming clear that companies and investors will use venues in different ways and some of the, some investors and some companies I think will see part of the attraction of PISCES venues as being actually to simplify the cap structure and so it may well be that you know although companies you know might have more complicated cap tables that they encourage their investors to transfer into the ordinaries in order to, for trading to take place and for investors, it may well be that actually you know part of the trade off is that you know they, they no longer have some of the enhanced rights that might be associated with you know pref shares or whatever line of securities but they get the benefit of liquidity and so you know I think we’re trying to accommodate sort of as many options as possible but certainly you know not force companies into either only having kind of ordinary shares traded or having to restructure their cap tables in order to join a PISCES venue.
Arthur Horsfall, Associate
Mishcon de Reya
I guess that feeds in a little bit with the other kind of market listing reforms where we’ve, we’ve seen dual class share systems happening so, it is envisaged that a PISCES, a company on a PISCES platform could have shares specifically for founders, specifically for employers which are essentially offline and then have the PISCES shares which have the advantage of that liquidity online.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
And you know, and then it all becomes about disclosure so you know incoming investors, you know as long as it’s fully disclosed that actually you know this company has got more complex structure and that these particular rights attached to these classes of securities then it’s you know it’s down to the incoming investors to make a judgement about that and around valuation.
Arthur Horsfall, Associate
Mishcon de Reya
Probably one for Liz on this. This is regard the tax matters to navigate when thinking of a PISCES platform. So, thinking about this readiness phase and need for company to make again non-transferrable shares freely transferrable. Are there any potential tax trip hazards, Liz which businesses should be alert to?
Liz Hunter, Partner
Mishcon de Reya
There certainly are and these are some of the granular points that have started to be flushed out as part of the consultation and the further dialogue that’s happened since then. I think we’ve also talked about it would be unrealistic to try and make this all things to all people from the outset but we do need to know where the landmines are and navigate around them and I think there are solutions but some of the challenges to be alert to are, well start with the shares have to be freely transferrable, most private company shares have restrictions on transfer. Lifting those restrictions can, if those shares are held by employees, trigger a tax charge so if just amending the articles to make it ready for a PISCES platform involves that step, you could be triggering tax charges before the shares are actually saleable, you haven’t got a liquidity auction event so, where’s the money coming from for that. That won’t impact always if employees have bought their shares at market value, if they have signed the all important tax selections for restricted employment related securities, we should be fine but any of us involved in this area or looking at transactions with private companies know those elections aren’t always made and sometimes shares are acquired with a discount without those elections so this is a real and not a theoretical risk to be managed. That tax charge if triggered, what does that entail? It’s income tax but does that just mean it’s the employees’ problem and they pay that under self-assessment? Well, not necessarily because there could be a requirement for payroll withholding and Pay As You Earn employer and employee National Insurance as well which will all depend on are the shares at that time readily convertible assets? Now, we look at this in a context of a private company looking to go through a standard IPO process and at what point is it taking meaningful steps towards an IPO? This was all part of parliamentary debate back in the early 2000’s but did that then trigger this employer obligation? We’re going to have the same questions around where’s this tripping point for meaningful steps towards PISCES? Liquidity auctions are not going to be continuous, they’re going to be periodic during a year, there’s probably going to be likely less, less trading volume so, will they be readily convertible assets? This is one of the question marks but something to be aware of. How might we solve all this? Well, change legislation, there may be introduction of an exemption so, if restrictions are lifted purely to enable access to PISCES, will that become via exemption? Wonderful if so but that’s for other Treasury policymakers to take a view on. Otherwise, you know could we see an adoption of a recommendation that was actually made back in 2020 by the Office of Tax Simplification that instead of the Section 431 elections being an opt in, it becomes opt out, that would be another solve and it was something recommended you know for other reasons before PISCES was even conceived so, wait and see, but yes there are some hazards, there are some potential solutions, we’ll have to see if they’re adopted or not.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Liz, in a way that highlights the fact that you know there are these sort of trip hazards that already exit in the system, but that just aren’t very visible but all of these things and you know there are lots, lots of them in different you know areas and bits of legislation and tax, that all really add grit into the system and that you know none of them in themselves are the, can you point to and say this is inhibiting company and economic growth but as a package, they all just add cost and grit and you know one of the, the medium to long term intentions of PISCES is actually to sort of try and get rid of some of this grit in the system and join up that funding continuum and if it highlights that there are some of these challenges and areas where legislation or culture or practice or you know processes within banks need to change then, you know that will be a big part of sort of solving the kind of the, the removal of cliff edges and, and you know challenges and grit within that whole funding continuum.
Arthur Horsfall, Associate
Mishcon de Reya
I think that goes into a wider question whether what’s raised in the consultation paper around to what extent employees would be able to participate as opposed to investors both in selling their shares or purchasing further shares for a PISCES and coming back to you Liz, do you see any issues for employees participating that might need to be addressed?
Liz Hunter, Partner
Mishcon de Reya
I don’t want to be the thorn in everyone’s side, I really don’t, there is a lot of merit in what is being proposed here and I don’t want to back away from that and there are other mechanisms already whereby employees can gain 39.39 market in terms of internal markets not always the 39.44 peer-to-peer match bargain platforms but they are there as well but enjoy benefit trust to provide that internal liquidity so that choice is there already, we would expect that to continue in parallel. Obviously one of the challenges with employees participating is their shares would have to be freely transferrable so we have the tax issue we previously talked about to navigate. Another factor is a lot of employees have their share rights via employee share plans and many, not all, but many private company share plans will only deliver those shares on an exit event and those plans in place already will not have a PISCES auction or registration on a PISCES platform conceived of as a listing event so their ability to access the shares won’t be triggered necessarily unless the rules of the plan are changed, which for a non-tax advantage arrangement could be done, for a tax advantage arrangement you could lose the tax advantage and this is what we’ve seen with clarification from HMRC in some of their guidance recently where businesses have perhaps sought to use for discretion to allow employees to exercise their options in contemplation of a traditional secondary share sell event. So that is one, that is one challenge and it’s, it’s one we’ve seen before to be honest in terms of the 41.26 business combination which became the new way to IPO in more recent years, exactly that same challenge presented. I think that’s something that could be planned for in new awards being made once more detail around the platform is known but for historic awards, I don’t think there should be many employees sitting there thinking this is going to be my liquidity event necessarily. So that’s one thing. In terms of employees being able to buy shares in their employer by accessing a PISCES platform, again they’re not going to be acquiring shares under the auspices of an employee share plan so that throws this into the financial promotions order regime, also under consultation with something which is seeing some flux this year around would those individuals be high net worth or sophisticated investors and able to access or still fundamentally private company shares as an investor. So we’re waiting to see the outcome of that consultation but that throws up a potential challenge around employees being buyers in this market. Another approach might be for the company to fund an employee benefit trust to buy the shares off that platform, hold them and distribute them to employees through shares if the aim is to increase that employee participation but I think employees as buyers or sellers initially have some challenges and we’ll see how they’re navigated.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Yeah I think I mean the point that really resonated there was around companies sort of planning in future and the fact that you know the existence of the PISCES framework and PISCES venues will provide that additional choice when people are planning whether it’s tax or you know or their ultimate sort of exit plan rather than it be very much a binary we’re going to sell the business or we’re going to IPO, there will be a third way and that, you know, and that’s very much getting it back to where we sort of started this conversation. The plan that would actually, it enables founders, management teams, to think right you know we’ve got the option to continue to grow this business but we might not be ready or we might have a business model that’s not really suited to the public market or whatever it is but we don’t want to sell the business either so, you know whether it’s in relation to sort of future tax planning or whether it’s in relation to you know the sort of the very complicated classes of shares sometimes that private companies have, I think we really hope that you know as PISCES venues gain momentum and become you know a really valuable choice for companies, it will actually give them more agency around some of these issues and whether that is to sort of say from an earlier stage to you know incoming investors, now actually we want to try and keep the share class structure a bit more simple or whether it’s around tax planning, you know it will just really help that sort of, that, that future optionality in planning really.
Arthur Horsfall, Associate
Mishcon de Reya
Do you think it’s fair to say then that in a way the PISCES platform will evolve from who you uses it but in the first instance it may be companies that want to rationalise their shareholder profiles and then going further, as we use the sandbox to evolve, I’ll use the word again, but we will then see potentially benefits to employees or benefits to other stakeholders in a PISCES.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Yeah, I, I, you know as we’re already seeing, I think in time we will see you know a broadening of the investor base, the company base and the use cases that people come up with and you know what’s really interesting about that is that you know we are having conversations with you know some very large international companies who are saying now we can really see the benefit of this so this isn’t, the intention isn’t just that this will be a you know UK only platform.
Arthur Horsfall, Associate
Mishcon de Reya
And I think the final point that we noted in the consultation paper was an idea of permissioned auctions in a way, not allowing certain investors to participate in buying shares in a company and we don’t see that on other public markets so, I’m just interested to see how you envisaged a permissioned auction to work on PISCES.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
So, first of all, this won’t be a public market, just keep…
Arthur Horsfall, Associate
Mishcon de Reya
…on public market, sorry.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Yeah, no, absolutely. I’m sorry, I’m not, I wasn’t being done but it is, it comes back to this point about you know kind of choice and the really hybrid nature of PISCES and why it’s sort of so innovative and for me, you know one of the real advantages of you know the, the very extensive engagement that you know we’ve had and that you know Treasury and FCA had prior to even sort of publishing that first consultation document was that it was really clear both from corporate and investors that you know they want, some of them want this ability to be able to restrict you know who can be buyers of shares and that could, you know either be that they want to operate a, you know a white list of approved investors or a black list of those that you know they wouldn’t want to be investors and they could be potential competitors, they could be potential investors from you know certain jurisdictions but you know that again coming back to having the company at the centre of this with you know that ability to have some control, you know it is you know it’s something that’s a real feature of the PISCES framework.
Arthur Horsfall, Associate
Mishcon de Reya
So like you said, it’s private plus, not public.
Marcus Stuttard
Head of UK Primary Markets & AIM, LSEG
Absolutely.
Arthur Horsfall, Associate
Mishcon de Reya
Public light. Great, well, I think actually we’re coming to an end and unfortunately, I don’t think we have time for any questions so, I think we’ll wrap it up there. I’d like to say a huge thanks again to Marcus for joining us for this Mishcon Academy Session and we look forward to continuing to collaborate with the LSEG on this interesting project. Just as an overall highlight of the Digital Academy Sessions, these are a series of online events, videos and podcasts all available on Mishcon.com and if you have any questions that you’d like answered or suggestions of what you’d like covered in future sessions, please get in touch with Liz, myself or by using the Mishcon contact page at Mishcon.com/contact. So, until next time, take care. Thank you very much.