Correcting the myths about Pisces: what you really need to know
There has been much in the press and online about the Private Intermittent Securities and Capital Exchange System (Pisces) the regulations for which were laid before parliament in early June. Unfortunately, some of what has been said has been wrong or misleading. So here are some common myths about Pisces:
Pisces is a market
No. Pisces is a regulatory sandbox in which those wishing to set up a market can do so in an experimental way for a period of five years. After five years the experiment will either be stopped or tweaked and made permanent. These market platforms will compete with each other for companies to list and for investors in those companies.
You can raise money through Pisces
No. A Pisces regulated platform will be a platform for trading existing shares – a secondary market only. It is explicitly not a forum for raising new equity capital – a primary market. As with all markets for every seller there will need to be a buyer and some investors will make, and some will lose, money.
Pisces is an initiative of the London Stock Exchange
No. The LSE is one of several organisations that have expressed an interest in launching a platform for trading private company shares under Pisces regulations. Others include JP Jenkins, which has been enabling the trading of private company shares since 1991, and Asset Match, which has over 70 companies “listed” on its platform.
Valuations are likely to be too high or too low depending on the valuer
Well, yes. But isn’t this always the case? That’s what moves prices.
The Pisces regulations will provide some assurance to investors and companies over the quality of the information provided by those companies but not as much as you get in a public share market. This added risk is why retail investors are being excluded from these markets unless they can demonstrate they can afford to lose their investment or are otherwise knowledgeable investors who know the risks they are taking.
Pisces is the answer to the UK liquidity problem
No. But one should not condemn a good start for regulated private company shares trading for want of being it perfect – that’s the point of a sandbox. Pisces is seen by HM Treasury and the Financial Conduct Authority as a possible stepping stone for private companies to be able to trade their existing shares ahead, perhaps, of an IPO on a growth market or a regulated stock exchange. Being required to publish certain core information and to update the platforms with information as the business grows will develop some of the disciplines required for becoming a public company.
The Pisces regulations are to some extent mirroring the Nasdaq Private Market, which has proved quite successful. So, the fundamental problem for the UK, the depth and breadth of the capital pool, remains. Possibly of greater significance will be the measures being taken to get more pension money into investments in equities, but liquidity (or the lack of it), especially in private company shares which only trade intermittently will continue to be an issue.
Edwin Richards is a corporate partner at full-service law firm JMW Solicitors in London