A new type of private stock market will be launched later this year after the Financial Conduct Authority (FCA) announced the final rules for its Private Intermittent Securities and Capital Exchange System (PISCES). 

PISCES is a new type of platform where shares in private companies can be traded. It will open the door to more opportunities for investors, facilitating their access to growth companies. Private companies can tap into a broader range of investors and asset managers and PISCES offers exits for shareholders to sell up. 

As companies choose to stay private for longer, there is demand for investors to trade private company shares easily and efficiently in an organised marketplace. PISCES meets this demand by allowing secondary trading of these shares. Companies can set the floor and ceiling of share prices and have a say over who can buy their shares. 

Access to PISCES will be limited to institutional investors, high-net-worth individuals, sophisticated investors and employees of participating companies. Investors will be provided with information about the risks involved to help them make informed decisions. 

As set out in the FCA’s letter to the PM outlining the regulator’s approach to support growth, PISCES can unlock capital investment and liquidity. 

Simon Walls, executive director of markets at the FCA, said: 

“This bold design rebalances risk, but it is bold risk taking that made the UK the leading financial centre it is today. The new platforms will give investors greater access and confidence to invest in exciting new companies, while early backers and employees can sell up and invest again.  

“PISCES is the latest step in the FCA’s wide-ranging reforms to the UK’s markets to boost growth and competitiveness.”  

Emma Reynolds, Economic Secretary to the Treasury, said: 

“PISCES is a great example of industry, regulators and the government working together to go further and faster on innovative reforms to strengthen UK capital markets, supporting economic growth and putting more money in people’s pocket as part of our Plan for Change.

“I welcome the FCA’s announcement, which follows our legislation and opens PISCES to industry. This also builds on our announcements on a Stamp Taxes on Shares exemption for PISCES transactions, and on employees retaining the tax advantages on eligible shares traded.”

Jason Hollands, Managing Director of Evelyn Partners, the wealth manager, said: 

“This is a welcome development and a genuinely innovative one for the UK’s capital markets. It creates a hybrid market that will provide private companies with access to periodic liquidity windows, without taking the leap to a full listing of their shares on AIM or the main market which would entail the daily trading of their shares and demanding disclosure requirements.  

“PISCES will enable companies to choose whether to restrict auctions to a limited group of investors or open up more widely, thus enabling them to evolve their ownership structures in a controlled manner and to determine the pricing range. This will provide a helpful bridge for companies who are not yet ready for an IPO, but who may be on a journey to public markets over time. 

“At the margin, this may well have a knock-on impact for AIM – the London Stock Exchange’s market for small and medium sized growth companies – which turns 30 next week on 19 June 1995. Some private businesses who might have previously contemplated joining AIM as the next step, may conclude this is a much better option for the next stage in their evolution. 

“It is no secret that AIM has been struggling in recent years, with a dearth of new admissions, private equity buyouts, and other companies moving to overseas exchanges or the main market. In fact, AIM has been shrinking at rapid pace with the number of companies on it now at about a third of what it stood at during its peak in 2007.  AIM’s challenges are in many ways an amplification of the wider issues that have faced unloved UK equities in recent years.  
 
“The Chancellor’s decision in her Budget last October to halve the amount of inheritance tax relief of AIM companies will provide a further headwind for the market as investors seeking to mitigate IHT by investing in AIM companies has previously proven a meaningful group of owners for a market of relative illiquid companies. Some fund managers expect to see a sizeable exodus of companies from AIM over the next couple of years as a result.  
 
“I do think policy makers need to strike the right balance in measures to bolster investment across the full spectrum of UK equities. The development of PISCES and the recent Mansion House Accord are aimed at supporting investment in private markets, but we also need to reinvigorate UK public markets too where lack of demand and consequently low valuations are an issue. It would be disappointing to plough so much effort into supporting fast-growing UK private companies, only to then see them continue to be lured overseas to markets like NASDAQ and the NYSE as they reach a size and stage when they are finally ready to IPO.” 

Dan Coatsworth, investment analyst at AJ Bell, said:

“The proposed new stock market called ‘Pisces’ won’t be like the ones people know today. It’s just for privately-owned companies and while it won’t be open to the public, there are positives from its creation. Pisces could help private companies get used to the idea of slices of their business being owned by different people. It might act as a stepping stone towards a public stock listing, getting them used to regular financial reporting, transparency as a business, and understanding that a company is run for the best interests of shareholders, not the board of directors.

“It could also encourage their staff to develop a saving and investing habit. One of the biggest stumbling blocks for private company share ownership is that staff are often put off by the general inability to sell those shares at regular intervals. A lot of private companies won’t offer the ability for staff to trade shares, meaning some people are stuck owning the equity until the business either lists on a public market or there is an internal event where they can sell down.

“In theory, Pisces could improve liquidity by allowing private company shares to be traded at more regular intervals. However, it has only been designed for intermittent trading, not the continuous trading during market hours that you get with publicly listed stocks. Such restrictions would give a company control over when changes in share ownership can happen. Disclosure requirements will be different to public markets in that investors taking part in a Pisces trading event should be told about company-specific information, but details won’t have to be made public. Lower levels of disclosure make Pisces-traded shares higher risk than ones available on London’s Main or AIM markets.”

Hannah Meakin, partner at law firm Norton Rose Fulbright, said:

“The FCA’s launch of PISCES marks a significant evolution in the UK’s capital markets infrastructure. By facilitating secondary trading of private company shares on a multilateral basis, it addresses a long-standing liquidity gap for growth companies and early investors. While the sandbox model allows for innovation, it also introduces a higher risk profile – particularly as some public market protections, such as key parts of the market abuse regime, will not apply. The inclusion of a limited scope of retail investors, albeit with safeguards like the Consumer Duty and risk disclosures, adds a layer of complexity that will require careful monitoring.

“This initiative reflects a broader regulatory trend – balancing innovation and investor protection to support UK economic growth. It is a unique model incorporating aspects of both private and public markets, but its success will depend on how well the regime manages the risks while delivering on its promise of greater access and liquidity.”

Suman Rao, Managing Director for the UK and Ireland at Avaloq, said:

“Yesterday’s announcement from the FCA regarding the launch of a Supercharged Sandbox to help firms experiment with AI using NVIDIA could be transformative for the wealth management industry, enabling smaller players, who have previously been held back by lack of expertise and access to data, to finally get on board and explore the potential of AI in a supported, low-risk environment.

“With our recent research highlighting that 87% of wealth managers across the UK believe AI will be integral to their future work and the UK wealth management as a whole, this initiative will no doubt be a welcome development for the industry. With the Sandbox promoting AI development in a safe and regulated environment, it will also go some way in providing reassurance to clients, many of whom are currently reluctant to trust AI when it comes to making investment decisions (24%) and financial planning (27%).

“That said, clients value human touch, and it’s unlikely that they will ever feel comfortable delegating decisions completely to AI. With AI development showing no sign of slowing down, the challenge for wealth managers now lies in establishing the correct balance between leveraging the benefits of AI while also maintaining human touch that clients value most. Those who can do this most effectively will be best positioned to lead as the industry enters a more innovative and automated future.”