ICAEW is calling for the Private Intermittent Securities and Capital Exchange System (PISCES) regime and framework to be more tightly defined – better enabling businesses to attract patient investors and allowing employee shareholders to gain access to liquidity.

In its response to a consultation on the Treasury’s proposed design of a new trading platform, which will allow the shares of private businesses to be traded in periodic auctions, it concludes that uncertainty about demand and practical costs need to be resolved before the concept can be realised. 

Under PISCES, platforms can operate to enable investors in private company securities to trade their shares in a controlled environment and at defined intervals, such as monthly or quarterly.

This effectively allows a company to go ‘public’ temporarily while providing access to a wider pool of investors before reverting to its ‘private’ status. The London Stock Exchange (LSE) Group is interested in operating a PISCES platform.

Companies will not be able to raise new capital using PISCES (although, confusingly, the Treasury says the platform will allow smaller companies to access capital) but it could allow them to diversify their shareholders and offer employees the possibility to realise gains by selling shares in their company. It also means that investors may be able to acquire shares in businesses that are not publicly traded. According to the Treasury, PISCES should give investors better access to exciting companies while also offering greater transparency and efficiency than available in private markets.

PISCES incorporates elements from public markets, such as those that offer multilateral trading, and elements from private markets that provide greater discretion on company disclosures. The tailored regulatory regime would provide investors with protections that unregulated off-venue bilateral trading would otherwise not afford, such as a clearer price formation process, a clear legal framework and regulatory oversight, and robust investor protection.

Support for IPO pipeline

Against a backdrop of dwindling shares listing applications for the main LSE market, it is hoped that PISCES will support the pipeline for future initial public offerings (IPOs) in the UK by improving the interface between private companies and UK public markets. PISCES complements a series of ongoing reforms – set out in the Chancellor’s Mansion House speech last July – designed to boost the UK’s standing as a listing destination.

According to data from the Financial Conduct Authority (FCA), the number of requests to float on the main market of the LSE dipped to its lowest level in at least six years, with only 56 companies applying to list their shares on the LSE’s main market between January and November 2023.

In its consultation response, ICAEW said: “[PISCES] has the potential to help the UK’s capital markets respond to the needs of a wider range of companies and investors than is currently the case.” However, it was originally touted as a wholesale market investment platform and now some of the PISCES proposals extend to retail investors – a focus that is prematurely wide.

Moreover, with major reforms to the UK’s capital markets as yet unfinished, “[We] also question the timing of the government and the FCA committing stretched resources to the establishment of PISCES when financial services regulatory reforms that will have greater impact have not been completed and fully implemented.”

ICAEW also cautions that a lack of detail about some areas of the approach is problematic. “More detail should be included about inside information, and about acceptable frameworks and standards. This should not be left to individual companies’ interpretation,” it urges.

Practical challenges

David Petrie, Head of Corporate Finance at ICAEW, says ICAEW had consulted widely with its faculty members together with the Corporate Finance faculty’s technical committee on the proposed platform. “This is a nice idea but like any innovation there will be practical challenges to overcome. For example, how much potentially commercially-sensitive information do you disclose to enable informed investment decision-making to take place and who do you make that information available to?”

The Treasury believes PISCES can help transition private companies to public markets. Petrie says companies looking to raise external equity or bring in other long-term shareholders do have other routes already open to them. The absence of evidence of demand in the proposals means that, “It’s difficult at this stage to see what type and size of company would find this option more attractive compared to the other models that already exist, such as private equity investment or a listing on AIM.”

There is no impact analysis in the proposals. According to several commentators, an unintended consequence could be that companies with very low liquidity on AIM choose to delist from AIM and instead have their shares traded intermittently on PISCES, at a time when AIM is already struggling in terms of liquidity and new listings. 

ICAEW is concerned about the lack of balance in the consultation proposals that fail to highlight potential disadvantages or uncertainties surrounding PISCES. “Replacing shareholders may not result in patient, long-term investors, it says. It also flags up possible capital restructure and complexity involved in the decision to participate on a platform and the burden of additional disclosures, as examples that organisations should be aware of.

Petrie adds: “There may be opportunities for the professional community to provide advice including reporting and disclosure, but our members will of course evaluate associated risk that comes with that advice.”