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Intermittent trading venue for private companies: shaping the "PISCES" framework

Posted on 22 May 2024

In a previous issue of our Agenda newsletter, we discussed the Government's proposal for a Private Intermittent Securities and Capital Exchange System (PISCES). HM Treasury's consultation on the proposal ran from 6 March to 17 April 2024. Welcoming the opportunity to explore how the new proposed regulatory framework for a private intermittent trading platform would work, Mishcon responded to the consultation both on our own behalf and through our membership of the Quoted Companies Alliance's legal expert committee.

The initial feedback we have received on PISCES from clients and intermediaries has overall been positive, but our response to the consultation highlighted a number of key issues that will need to be addressed to make the proposal workable.

Who will be eligible to trade?

HM Treasury's consultation poses the question as to whether PISCES should be a market targeted at "wholesale market participants, namely professional investors", whether sophisticated and/or high net-worth investors should be allowed access and whether employees should have the opportunity to purchase shares in their company on PISCES. Employees having the ability to purchase shares on PISCES would raise a number of tax and regulatory issues, including under the employment-related securities tax legislation and the financial promotions regime. An alternative, which we have asked HM Treasury to consider, is whether it might be preferable to instead allow trustees of Employee Benefit Trusts (EBT) and Share Incentive Plan (SIP) trusts to acquire the shares from a PISCES platform and then have the EBT or SIP deliver shares to employees under a statutory tax-advantaged share plan.

Stamp taxes and PAYE

Among the aims of PISCES are providing liquidity in private companies and giving investors better access to such growth companies than is currently available. The proposals are more likely to gain traction with investors if PISCES share trades are exempt from stamp taxes, as is the case for shares traded on the AIM market.

We have sought clarity on whether a company taking meaningful steps to register to trade shares on PISCES would render the shares readily convertible assets for PAYE tax purposes (in the same way that taking meaningful steps towards a flotation on a recognised stock exchange does). This is important to understand irrespective of whether or not employees are allowed to acquire their employer group shares via PISCES as it may impact the employer's obligations in relation to other arrangements for providing equity to employees.

Free transferability v protections for shareholders

For shares to be traded on PISCES, they will need to be "freely transferable" and must not otherwise by admitted to trading elsewhere. The consultation states that companies will need to undertake the necessary steps to ensure that that is the case, for example agreeing with shareholders to amend their articles of association, if necessary. Many, if not most, private companies will, however, have restrictions on transfers of shares designed to protect investors and to closely ringfence who can become party to sensitive shareholder decision making and commercial information sharing. Investors may be reluctant to give up these protections. Reconciling these competing factors may be challenging for some companies. It may be a solution, in the right context, for one class of a company's share capital to be freely transferable and traded on PISCES, while another share class remains subject to restrictions.

Lifting restrictions on share transfers for shares in order to trade shares on a PISCES platform may also be problematic from a tax perspective. In particular, if a restricted securities election has not been made previously under section 431(1) ITEPA 2003 in respect of restricted employment-related securities. HM Treasury have therefore been nudged to give consideration as to what changes in legislation may be needed to reconcile these tensions and  to mitigate this risk, which might otherwise deter companies from registering for PISCES.

Disclosures and market abuse

Disclosures in respect of PISCES companies will be made within a "private perimeter" established by the relevant PISCES operator. The intention is that detailed company disclosures and pre-and post-trade data will only be required to be made available to eligible investors participating on the platform, by applying a modified version of the Market Abuse Regulation (MAR).

In our view, the key market abuse risk is likely to be the completeness of information contained within participating companies' disclosures. Whilst the definition of inside information may be well understood within the regulated sector that may not be the case across private companies in a variety of industries. Furthermore, in the absence of a formalised role equivalent to the sponsor or Nomad to provide guidance, participating companies may be unclear on the precise nature of their obligations. Differences between an adapted PISCES MAR and the MAR regulations that apply to publicly listed companies could be an additional source of additional confusion.

In order to mitigate these risks, we have suggested to HM Treasury that guidance similar to the FCA's guidance in the Disclosure Guidance and Transparency Rules sourcebook be explicitly applicable to disclosures required on PISCES.

Next steps

The Mishcon PISCES working group has produced an independent survey to capture interest and feedback on the proposal here:

Complete the survey

This is still open, and we welcome your feedback.

We will continue to provide updates as more information becomes available. In the meantime, please contact us if you would like any further information.  


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