The Financial Conduct Authority (FCA) has issued an update following the consultation on the Private Intermittent Securities and Capital Exchange System (PISCES), with the intention of providing potential operators with clarity on its forthcoming rules. This regulatory update primarily aims to respond to feedback from industry stakeholders, clarify the FCA’s current thinking, and offer a snapshot of the likely rules that will shape PISCES operations in the near future.
The PISCES Framework
In December 2024, the FCA issued a consultation paper (CP24/29) focused on the establishment of PISCES, a new type of platform designed to enable the intermittent trading of private company shares. PISCES aims to bridge a critical gap in the market by providing a framework that facilitates the intermittent trading of shares in private companies. This platform is designed to be flexible, supporting various business models, and encouraging growth, innovation, and competition in private markets.
The FCA’s update offers preliminary insights into the changes it is considering in response to the feedback received during the consultation period. While the feedback generally supported the FCA’s proposals, there are several technical amendments and clarifications that will be made to the final rules.
Feedback Received and Response to Consultation
Overview of Consultation Proposals
The FCA’s consultation set out proposals that sought to build upon existing features of private markets. The consultation envisioned a ‘private plus’ approach, designed to allow a wide variety of PISCES models to be tested. This flexibility was designed to stimulate innovation in the private markets and support a diverse set of trading models.
The consultation proposed a framework that allows for experimentation, where firms could test different models and approaches. Most respondents supported this approach and appreciated the flexibility embedded in the proposal. Consequently, the FCA has confirmed that it does not intend to make significant changes to the core structure of the proposed framework. Notably, the alternative proposal in CP24/29—regarding a ‘sweeper’ model for company disclosures—was not favored by stakeholders, and the FCA does not intend to move forward with that suggestion.
Key Feedback Areas and FCA’s Likely Response
Core Disclosures: Financial Information
The final rules will clarify that an auditor’s report is required only where financial statements have been audited. If management accounts are disclosed in place of audited financial statements, those accounts must clarify that they may not be prepared in accordance with the same standards as the financial statements.
Core Disclosures: Employee Share Scheme
Disclosures will need to include specific information about any rights to acquire shares, any future commitments to issue new shares, and any potential obligations to fund an employee benefit trust. These disclosures are aimed at providing clarity regarding the potential impact of employee share schemes on investors and the company’s share structure.
Core Disclosures: Directors’ Transactions
The final rules will not extend the requirement for disclosure of major shareholders’ trading intentions but will focus on directors’ transactions. These disclosures must be correct as of the start of the trading period.
Core Disclosures: Litigation
The FCA has decided not to impose a requirement for disclosure of litigation status in the final rules.
Core Disclosures: Material Contracts
The final rules will focus on requiring an overview of material contracts rather than details of each contract, and exclude contracts that are considered to be in the ordinary course of business.
Core Disclosures: Share Capital Raises
Companies will be required to disclose information about the class of shares issued during previous capital raises.
Core Disclosures: Major Shareholders
The final rules will provide PISCES operators with the discretion to set a threshold (up to 25%) for identifying major shareholders. Companies may be required to disclose their Companies Act Persons with Significant Control Register.
Core Disclosures: Sustainability and Forward-Looking Information
The FCA has decided not to include requirements for sustainability-related disclosures or forward-looking information.
Post-Trade Event Disclosures
The final rules will not require post-trade disclosures on directors’ transactions or the positions of major shareholders.
Operator Oversight
PISCES operators will be expected to monitor risks to the orderly trading of securities. The FCA recognizes that operators do not have statutory powers but will expect them to have proportionate controls in place.
Complaints Procedures and Disciplinary Arrangements
The final rules will not apply the MAR 5.6A.1R to PISCES operators but will offer guidance on ensuring that operators consider the interests of investors and market integrity when determining whether to intervene in trading events.
Permissioned Trading Events
PISCES companies may impose restrictions on intermediaries from participating in a trading event, provided these restrictions are transparent and non-discriminatory.
Right of Private Action
Breaches of rules in certain parts of the regulatory framework will not give rise to a right of private action under section 138D of the Financial Services and Markets Act (FSMA) 2000. This aligns the treatment of PISCES with that of other regulatory areas.
Next Steps: Developing Final Rules
The FCA has made it clear that the positions outlined in this update are still subject to further development and may evolve before the final rules are published. The FCA anticipates publishing the final policy statement in June 2025, at which point the complete set of final rules will be presented. These rules will serve as the foundation for PISCES operations and will offer more detailed guidance on various aspects of the platform, from disclosures to operator oversight.
Pre-Application Support for PISCES Operators
In the interim, the FCA is welcoming requests for pre-application support from prospective PISCES operators. This engagement allows potential operators to seek preliminary feedback on their proposed operating models and draft rulebooks. This engagement process can begin immediately, and firms are encouraged to engage early, so they are better prepared when the final rules are published.
Frequently Asked Questions
What are the key features of PISCES?
PISCES allows intermittent trading of private company shares, offering flexibility, transparency, and regulatory oversight to encourage innovation while ensuring investor protection and market stability.
What disclosures are required from companies trading on PISCES?
Companies must disclose financial data, employee share schemes, directors’ transactions, and major shareholders, with some exemptions on forward-looking and sustainability disclosures.
What is the ‘private plus’ approach?
The ‘private plus’ approach offers flexibility for various models of private market trading, allowing firms to test new ideas while maintaining regulatory standards and market integrity.
Will PISCES be open to all private companies?
Only companies meeting FCA criteria, including appropriate disclosures and compliance with regulations, can participate in PISCES to ensure proper market integrity and investor protection.
How does PISCES ensure investor protection?
Investor protection is ensured through required disclosures, operator oversight of market integrity, and the enforcement of compliance to prevent risks and safeguard investor interests.
When will the final rules for PISCES be published?
The FCA plans to publish the final rules for PISCES in June 2025, providing clear regulatory guidelines and requirements for operators and participants.
Can operators make changes to the PISCES rules?
While operators must adhere to the final rules, some flexibility exists within the framework, allowing operators to adapt to specific trading models or market conditions.
Can PISCES be used by international companies?
Yes, international companies can participate in PISCES, provided they meet FCA’s regulatory requirements and comply with the platform’s rules and disclosures for market participation.
What support is available for prospective PISCES operators?
Prospective operators can engage with the FCA for feedback on proposed models and draft rulebooks, ensuring compliance before final rules are published in June 2025.
What will the application process for PISCES operators involve?
The process involves submitting operating models and rulebooks for FCA review, ensuring compliance with regulatory requirements, with formal feedback provided after final rules are published.
How will PISCES impact the private equity market?
PISCES is expected to enhance liquidity in private equity by offering a regulated space for intermittent share trading, benefiting investors and facilitating market access for private companies.
Will PISCES provide liquidity in private markets?
Yes, PISCES will provide liquidity by enabling intermittent share trading for private companies, improving access to capital and investment opportunities in private markets.
Conclusion
The FCA’s update on PISCES marks an important step in shaping the regulatory framework for this innovative new platform. By providing early clarity on the likely direction of the final rules, the FCA is giving potential operators the opportunity to plan and prepare for the launch of PISCES. With continued stakeholder engagement, the framework is expected to evolve in a way that supports growth and competition in private markets while ensuring investor protection and market integrity.
