The UK is introducing an innovative new form of regulated trading framework called PISCES (Private Intermittent Securities and Capital Exchange).

Providing a market for trading shares in private companies, PISCES has been created to:

• Give early-stage investors (including EIS or crowd funding investors) and other shareholders (including founders and employees) a way to more easily realise their gains
• Simplify capitalisation tables and reduce some of the administrative burden of larger shareholder bases
• Increase the liquidity of shares of private companies
• Offer investors easier access to invest in growth companies pre-IPO
• Potentially act as a ‘stepping stone’ on the journey to future listing on AIM or the Main Market.

Sellers on PISCES could include original owners, smaller investors or employees. It is anticipated that PISCES providers will formally launch their platforms in the coming months, with share trading likely to begin in autumn this year.

How will PISCES operate?

PISCES is a framework governing a form of secondary market that will make it easier to buy and sell shares in private companies on an auction basis, without companies needing to list.

Unlike the Main Market or AIM, there will not be a single marketplace called PISCES. Instead, the regulations allow for multiple PISCES-compliant markets with different private operators.

Loosely modelled on similar listing facilities in the US, such as Nasdaq Private Markets, the PISCES framework is intended to encourage private companies to stay and grow in the UK, and in some cases to ease their transition to public markets.

Trading can happen in intermittent trading windows, for example quarterly, biannually, yearly or on an ad hoc basis. Companies will have discretion on the timing of these trading windows, the eligibility of potential purchasers and share pricing.

As a secondary market, it is only available for shares that have previously been issued and will not enable the sale of new shares. For that reason, it’s not a means of raising new capital for unquoted companies.

Who can invest on PISCES?

Trading will largely be limited to sophisticated investors, high-net-worth individuals, institutional investors and employees of participating companies.

To protect its commercial interests, a company can set restrictions on who can buy its shares, for example to prevent a competitor owning shares.

What are the potential benefits of PISCES?

1. Employees can liquidise shares – PISCES could provide a new route to allow founders and employee shareholders to realise value for their shares without a sale of the company or an IPO. With many companies now waiting longer before listing or seeking a buyer, this could be particularly useful where such an event is likely to be some years away.
2. Tax advantages – In some circumstances, employees will be able to cash in their share options without losing the tax benefits of their Enterprise Management Incentive (EMI) and Company Share Option Plans (CSOP) contracts. The Government has recently announced that companies operating EMI or CSOP plans will be able to amend plan documents to allow for a PISCES trade as an exercise event, without losing existing tax benefits. This will mean that participating employees can potentially continue to receive tax advantages on their shares. Where available, they’ll be eligible to pay the lower capital gains tax rates of 24% or even 14%, rather than at income tax and NICs rates of up to 47%. There is also an exemption from stamp duty on share purchases via PISCES, simply to incentivise its use.
3. Less administrative burden – PISCES will require significantly reduced disclosure requirements compared to public markets, which is one reason why the platform could be a lower-cost alternative to an IPO.

Questions to be resolved

Although PISCES is expected to be cheaper than a listing on AIM or the Main Market, the costs attributable to trading remain unclear.

With final details yet to be confirmed, the Government has recommended that EMI and CSOP plans should not yet be amended. Businesses will need to pay careful attention to planning and other considerations when making amendments to existing plans and designing new plans while we await further guidance.

Next steps for your private companies

PISCES will provide an additional dimension to share plans in private companies. For more information, please speak to Martin Cooper, Fiona Bell, Simon Adams or your usual contact from the share plans and reward team.

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