Further to our article in November 2024, on 17 December 2024 the Financial Conduct Authority (“FCA”) announced the launch of its Consultation Paper CP 29/24 (the “Consultation”) on the sandbox arrangements for the Private Intermittent Securities and Capital Exchange System (“PISCES”), the new secondary market for shares in unquoted companies.

The innovative new market hopes to widen investment opportunities, whilst increasing companies’ options to access funding and to grow. These potential benefits have associated risks and the FCA is using this Consultation to work with market participants at all levels and sectors to explore and examine those risks in further detail, an important step towards delivering the new market later this year.

For those looking to understand how PISCES will fit in with existing multilateral trading facilities and crowdfunding platforms, there is a helpful overview in Table 1 of the Consultation which looks at the key features of each of these investment methods and demonstrates the new opportunities which PISCES hopes to present. That said, it is important to remember that the FCA sees PISCES as a “private-plus” environment so rather than using public market standards as the starting point, the FCA wants to build it from the basis of private market practices.

PISCES will initially be delivered via a sandbox to allow it to be tested and developed before the possible implementation of a permanent regime. On that basis, the Consultation looks in detail at the different aspects of how the sandbox will work, from the disclosure regime to the practicalities of organising and operating trading events and having oversight of investors’ actions and guarding against market manipulation (see below for further detail). The Consultation also seeks views on the initial draft of the PISCES Sourcebook (see Appendix 1 of the Consultation) which will guide investors, companies and their advisors as they look to navigate this new market.

Disclosure obligations

The suggested disclosure requirements are not designed to be a modified version of the UK Market Abuse Regime (anticipating that such an approach would be a deterrent to potential investors) but to create an environment in which investors take responsibility for their decisions, i.e. “buyer beware”. On this basis, companies would disclose “core information” such as the company’s financial information, its capital structure, ownership and rights and details of material litigation, contracts and risks to the business (see Table 2 on pages 19 and 20 of the Consultation for the full list of “core information”). Companies would be allowed to have “legitimate omissions” from this list, for example where the disclosure would likely prejudice the legitimate interests of the company.

Trading events

Companies will be able to set price parameters for a trading event and if they do so, the “core information” disclosure referred to above must set out:

• any floor and ceiling to the price;
• how the parameters were determined;
• the reason to any change in parameters from previous trading events; and
• who prepared the valuation and pricing parameters (the company or an independent third party).

There would be no requirement for companies to verify that their pricing methodologies are fair or reasonable.

A PISCES company will be able to restrict access to a trading event only if it promotes or protects legitimate commercial interests of the company (for example not allowing competitors to participate in the event or ensuring that investors in a certain jurisdiction can’t buy shares). That said, a PISCES operator must not allow a company to prevent an existing investor from selling their shares at a trading event, unless such investor is an employee and their contract prevents them from doing so.

The PISCES operator would also make appropriate notifications to publicise a trading event, giving parties the minimum information necessary to enable them to decide if they want to participate whilst balancing the company’s concerns to limit access to commercially sensitive information.

As PISCES platforms won’t be trading venues as defined under UK MiFIR, the transparency obligations regarding traded shares won’t apply by default to PISCES operators. On that basis, it is suggested that details about current bid and offer prices and the depth of trading interest at those prices are disclosed during a trading event and the PISCES company must also disclose the last traded price and volume at any previous, relevant trading event to all eligible participants in their trading event.

Risk Warning

The FCA is clear that the liquidity of PISCES shares will never be guaranteed and has prepared a template risk warning (see page 53 of the Consultation) with the aim of (1) highlighting the risks of this market to investors and (2) ensuring consistency in warnings across PISCES operators, in turn providing clarity to investors and minimising the operational burden for operators.

Market manipulation and oversight

There will be no MAR-like market abuse or transaction reporting regime as the burden of doing so is considered to outweigh the benefits, deterring participation. Instead, it would be for operators to put in place their own measures and they would be subject to existing obligations on trading venue operators which are designed to ensure fair and orderly trading. Operators would then be required to regularly review their policies and update them as needed to prevent manipulative trading.

Consumer protections

There will be an obligation on those taking orders to place trades on PISCES to “believe on reasonable grounds” (in line with the approach in the Financial Promotion Order) that an individual meets the investor eligibility criteria set out in the draft sandbox regulations.

Responses to the Consultation are required by 17 February 2025 and some initial responses have already been published. For example, the member firms of UK Finance and the Association for Financial Markets in Europe (“AFME”) released their response on 9 January 2025. In their view the draft statutory instrument “effectively reflects” the intentions however they have highlighted some points for clarification, for example the ability of ex-employees to use the platform.

The FCA hopes to launch PISCES in May 2025.