Pisces regulations have arrived. Here’s what you need to know
It’s the moment you’ve been waiting for. This week saw the publication of new regulations governing the Private Intermittent Securities and Capital Exchange System – or Pisces, to you and me.
The regulations were laid before Parliament on Thursday as a Statutory Instrument, meaning they were waved through without debate, and will come into force on 5th June.
The Pisces framework will allow the creation of a new type of private stock market with a much leaner regulatory burden compared to firms on public stock exchanges. The government hopes the move will boost investment into startups and fast-growing businesses.
The publication of the new rules means stock markets can launch their Pisces platforms in the coming months with shares likely to be traded as soon as the Autumn.
Here’s a look at some of the key aspects of the new regulations.
Pisces is a framework, not a market
Pisces represents a set of rules that will govern any market for private companies that comply with them – there will be no single marketplace called “Pisces”.
Instead, there are likely to be multiple Pisces-compliant markets with different private operators. That includes London Stock Exchange owner LSEG, and London private securities venue JP Jenkins, both of whom have expressed an interest in setting up a Pisces market.
Confusion has arisen on this point, not helped by the FCA, whose director Simon Walls this week said he was “laying the groundwork for a new private stock market.” He should instead have referred to a new type of private stock market.
Tax exemptions
Fresh tax exemptions will be added to Pisces shares, as Morning Wire revealed this week.
The new legislation will ensure employees with share options will be able to exercise them on Pisces and retain tax advantages, with the existing Enterprise Management Incentives and Company Share Option Plan contracts extended to include the platform.
In last year’s Autumn Budget, Reeves also announced that Pisces transactions would be exempt from stamp duty taxes on share trading.
Intermittent, not regular trading
Pisces will not operate like a regular stock market, with unlimited trades between set daily opening and closing times. Instead, there will be “intermittent” trading of shares, which the rules refer to as “occasional, not frequent, and of limited duration.”
In practice, that is likely to take the form of regular (e.g. monthly) auctions – a move that will make it much more cumbersome to buy and sell shares compared to a public stock market.
‘Sophisticated’ investors only
Pisces company shares will not be available for purchase by ordinary investors. Instead, only professional or “sophisticated” investors will be eligible to participate, for which they will need a certificate to show they are “sufficiently knowledgeable to understand the risks associated with an investment such as a Pisces share.”
However, these certificates will not require regulatory authorisation – so the range of possible investors could be quite broad in practice.
It’s possible that retail investors could get their hands on Pisces shares – for example in the case of ex-employees who held on to share awards, or recent retail investors in a listed company that delists in favour of joining a Pisces market. Though they would only be able to sell the shares, rather than buy any.
No share buybacks
Under regulation 8 of the rules, Pisces companies will not be permitted to buy or sell their own shares – so no share buybacks.
This is thought to have been put in place to prevent market manipulation as well as stopping companies from accessing the tax breaks enjoyed via buybacks – though it may raise concerns over the liquidity of Pisces markets given the relative infrequency of trading.
Disclosure rules
Like a publicly traded company, there will be rules about when a company must disclose financial information to shareholders.
Though the rules do not yet spell out how much information and with what frequency.
FCA sandbox
Approved Pisces operators will be admitted to a five-year regulatory sandbox run by the FCA, which has been given the authority to make technical changes to the rules as they see fit to make Pisces market run more smoothly.
By June 2029, the FCA will be expected to have published a report on the effectiveness of the Pisces market during its sandbox phase, and make recommendations as to how the rules can be fine-tuned before they are finalised.