PISCES

What is PISCES?

The Private Intermittent Securities and Capital Exchange System (PISCES) is the regulatory framework for a new type of regulated trading platform that allows for secondary trading of private company shares. It represents one of the most significant developments in UK capital markets in recent years, and one that raises complex legal, regulatory and structural questions for the companies, investors and operators involved.

Key features of PISCES

Who can invest?

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) can buy shares. General retail investors are not permitted to invest in PISCES shares, but certain categories of retail investors who meet specific criteria are eligible.

Company control over investors

The PISCES framework aims to give trading companies control over the categories of persons who may buy shares. This means that it is possible, in theory, to restrict categories of investors further beyond the baseline sophistication requirements. For example, FinTech companies using PISCES could choose to restrict competitors from investing in their shares through the platforms.

Stamp duty

PISCES transactions are exempt from Stamp Duty and Stamp Duty Reserve Tax.

Disclosure regime

PISCES companies are subject to a bespoke disclosure regime. "Core disclosures" include the minimum set of information that must be disclosed to investors, including business and management overviews, financial information, capital structure, material contracts, price parameters and directors' trading intentions. Additional information may be disclosed, either voluntarily or in response to investor questions, depending on the rules of the relevant PISCES platform.

Operators

So far, the London Stock Exchange, JP Jenkins, Asset Match and Vestd have obtained authority from the FCA to operate a PISCES platform. It is worth keeping an eye out for upcoming potential operators as the PISCES landscape continues to develop.

Why is PISCES important?

PISCES is not a primary market; it is designed 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.

For scaling companies, joining a PISCES platform offers the potential to tap into a wider pool of investors and create fresh liquidity. This also creates a new way to provide employee shareholders with share liquidity and enable loyal customers, who meet the investor eligibility criteria, to become shareholders, whilst the business continues to scale.

PISCES platforms aim to provide access to a pool of established investors who have already been vetted and certified as meeting sophistication requirements. This creates curated investor bases that combine retail participation with appropriate investor protection safeguards.

Our role

We bring together expertise across corporate, capital markets, incentives and remuneration, and financial regulation to advise on the full range of issues that PISCES raises.

We have been engaged in the development of the PISCES framework since its inception. Mishcon responded to the HM Treasury consultation on the legislation for the PISCES framework both on our own behalf and through our membership of the Quoted Companies Alliance's legal expert committee.

The complexity of PISCES means that the right advice, taken early, can be the difference between a smooth trading event and costly structural or tax problems down the line. This includes:

Selecting the right platform

Companies considering PISCES will need to assess which platform is best suited to their profile and should be prepared for the differing obligations that each one imposes. We can help you navigate those differences and identify the right fit for your company's profile, shareholder base and commercial objectives.

Structuring

There is no universal solution when it comes to structuring for trading on PISCES. For example, LSE's first PISCES participant was accessed via a Luxembourg securitisation vehicle, rather than directly through a UK private company. The most appropriate approach for any given company will depend upon its existing corporate structure, share capital arrangements, shareholder composition and commercial objectives. Companies should seek careful advice before concluding that any particular model is suitable for their circumstances.

Tax implications

Tax risk must be addressed in advance. Joining a PISCES platform can give rise to a range of tax considerations, including in relation to existing share structures and employee equity arrangements. Early specialist advice is essential to ensure that companies are not hampered when seeking to use PISCES as a liquidity option in the future.