Earlier this month, the UK Treasury laid out a regulatory framework for a new intermittent trading venue as part of the spring 2024 Budget. The proposed Private Intermittent Securities and Capital Exchange System, or Pisces, would allow private companies to trade their securities in a controlled environment and on an intermittent basis during trading windows.
According to HM Treasury, Pisces will incorporate elements from public markets, such as those that offer multilateral trading, and elements from private markets that provide greater discretion on which company disclosures should be made public.
The government hopes the new venue will support the pipeline for future initial public offerings in the UK by improving the interface between private companies and UK public markets and complementing the government’s wide-ranging and ongoing reforms to boost the UK as a listing destination.
Pisces will be developed using a financial market infrastructure sandbox. Last year’s Financial Services and Markets Act gave the UK Treasury powers to create FMI sandboxes. This allows novel FMI models and practices that would not be permitted under the existing legal and regulatory framework to be tested within a live environment.
In a speech made in London earlier this year, economic secretary to the Treasury Bim Afolami said that Pisces “will give private companies better access to UK capital markets, [and] break down the artificial regulatory cliff edge that exists between the public and private markets”.
According to David Schwimmer, CEO of the London Stock Exchange Group: “The introduction of a venue that provides private companies with choice in how and when they access liquidity, and gives shareholders opportunities to enter and exit investments, could be transformational for UK capital markets.”
Writing last year in a blog post when talk about a new intermittent trading venue was being discussed, Darko Hajdukovic, head of new primary markets at the LSE Group said the current environment where choices and options available for private companies are limited is “undesirable”.
He went on to write that a public market operator like the LSE Group would welcome this reform because its “primary purpose, for hundreds of years, has been to be a convenor of capital, bringing together those who have capital with those who need capital to help fund growth and innovation”.
Myles Milston, co-founder and CEO of Globacap, said: “Even with the introduction of Pisces, the UK is still playing catch-up. The US’s alternative trading system framework has been in place since 1998 and has seen some real growth and success over the past couple of decades, leading to deep and liquid private markets.”
Milston said that there are some in the industry who are calling for continuous trading in addition to intermittent, which would align with the US. But he adds: “This isn’t worthwhile for most private entities because few have enough liquidity demand for this to work. Even in public markets most listed entities don’t have enough liquidity to support continuous trading.”
Regarding continuous trading and liquidity issues, a spokesperson for the LSE Group said: “The venue will allow companies, every once in a while, to provide the opportunity to new and existing shareholders to transact through a controlled and efficient mechanism of a stock exchange auction. For those short periods of time, professional investors would get the information and protections more usually associated with a public market when deciding whether to come in or out of share registers. Companies will remain private outside these trading intervals.”
Euroclear expects the Pisces venue will bring private capital markets into the mainstream infrastructure and support a wider array of investors with access to new asset classes.
“As a financial market infrastructure, we support innovation that drives efficiencies and improves access to capital markets. Pisces has the promise to support private companies to access liquidity and tap into UK capital markets as they ascend the funding escalator,” said Richard Fenner, director of government relations, Euroclear UK and international.
Public consultation for Pisces is ongoing and closes on April 17 2024. Expected participants include potential companies, investors and market operators, as well as regulated intermediaries (like brokers and investment banks), professional service firms and trade associations. The Treasury intends to lay secondary legislation before the UK Parliament later in 2024 to set up the Pisces sandbox. The Financial Conduct Authority also intends to consult on the sandbox before it is established at the end of 2024.
