UK: FCA consults on regulatory framework for PISCES secondary market

For the background on PISCES and the companies and investors that will be eligible to participate, refer to our earlier briefing: UK: Government to establish new market to trade private company shares.

The consultation includes, amongst other things, the proposed rules for the disclosure of information by PISCES companies, how PISCES operators must organise and run trading events and the role of PISCES operators in monitoring trading on their platforms.

What does the consultation cover?

This is a lengthy and detailed consultation, which sets out the FCA’s proposals for the regulatory framework for PISCES, including the draft rules and guidance for PISCES operators. The consultation includes at Appendix 1 the draft PISCES Sourcebook (which sets out the operator rules and guidance). There will also be consequential amendments to other sections of the FCA Handbook.

We highlight below some of the key aspects of the proposed regulatory framework that will be of interest to companies that may be interested in trading their shares on a PISCES platform once established, as well as investors who may look to participate in a PISCES trading event. The relevant rules will be set by PISCES operators, and such operators will have to comply with the relevant FCA rules (contained in the PISCES Sourcebook) in order to be authorised to operate a PISCES platform.

Disclosure of information

Chapter 3 of the consultation outlines the proposed tailored disclosure regime for PISCES companies. The disclosure regime in the UK Market Abuse Regulation (UK MAR) will not apply to PISCES companies.

The rules made by PISCES operators will have to include a requirement for companies to disclose a standardised set of core information. There is a full list of this set out at paragraph 3.14 of the consultation. This broadly reflects some of the key information that a purchaser would typically request in a private M&A transaction. It also includes the trading intentions of the directors of the PISCES company, which may be viewed as important given that it is recognised that some investors could have access to information not available to other investors and the UK’s insider dealing regimes will not apply.

The core information will be supplemented by an obligation on PISCES operators to ensure that the disclosure requirements for their platform are appropriate for the efficient and effective functioning of their markets. Where the core disclosure requirements are not sufficient to do this, the operator will have to put in place arrangements for the provision of additional information by PISCES companies. The FCA proposes guidance as to what the additional arrangements may constitute, including:

• Rules that require the disclosure by a PISCES company of other information its board of directors considers relevant for informing PISCES investors in making their decision to trade in PISCES shares (a "sweeper‑model" requirement); and
• Arrangements overseen by the PISCES operator that facilitate the provision of information by a PISCES company in response to specific requests by PISCES investors for the purposes of assisting them in deciding whether to trade in the PISCES company's shares (an "ask‑model").

Other key features of the disclosure regime include:

• Rules providing for the legitimate omission of core information;
• Requirements for PISCES companies to disclose updated information where disclosures contain material mistakes or inaccuracies, or material new developments occur.
• Disclosures will have to be made available to all investors participating in a particular event at the same time. Disclosures will not be made publicly (as they are under UK MAR).

The PISCES disclosure liability regime applies a negligence standard to core information disclosures and a recklessness/dishonesty standard for some forward-looking statements. The FCA rules specify that forecasts of financial information and details of a company’s business strategy and objectives covering at least the next 12 months will be forward-looking statements for this purpose. This is similar to the approach proposed under the draft new prospectus rules, but the negligence standard of liability may be considered a high bar by some participating companies.

Disclosures will not be reviewed by PISCES operators, but they will have to monitor compliance by companies with their disclosure rules (taking a proportionate and risk-based approach) and to have procedures in place for complaints and disciplinary action.

The FCA will set technical requirements for communicating disclosures to investors. The FCA envisages that disclosure arrangements could work in a similar manner to data rooms in private M&A transactions.

Trading events

Chapter 4 of the consultation sets out the FCA’s proposals for how PISCES operators must organise and run trading events.

PISCES operators will be able to allow the companies on their platforms to set restrictions on who can buy their shares, in what will be known as ‘permissioned trading events’. This will be important to many private companies. The FCA proposes that access to a trading event should only be restricted in order to promote or protect legitimate commercial interests of the company, for example by preventing its competitors from buying shares.

Chapter 4 also sets out proposed rules for notifying trading events and pre-and post-trade data transparency requirements.

Market manipulation and oversight

The FCA will require PISCES operators to put in place rules and arrangements to mitigate the risk of manipulative trading practices occurring. Operators will be responsible for monitoring, investigating and acting against abusive trading behaviours. The FCA will supervise the functioning of operators' rules and arrangements to ensure they maintain fair and orderly trading, protect investors and preserve market integrity.

Other matters covered

The consultation also covers:

• The FCA’s approach to determining PISCES sandbox applications and the types of information the FCA is likely to require from applicants (Chapter 6).
• In Chapter 7, the consumer protections that the FCA proposes should apply to enable retail investors who are eligible individuals to identify investments that suit their circumstances and attitude to risk. As a reminder, only institutional investors, employees of participating companies and investors who meet the definition of high net worth individuals and self-certified or certified sophisticated investors under the Financial Promotion Order 2005 will be able to buy shares on PISCES.

Next steps

Comments on the proposals and questions in the consultation should be submitted by 17 February 2025. The consultation includes details on how to respond. The FCA will publish its final rules after HM Treasury has laid its final statutory instrument before Parliament to establish the legal framework for PISCES, which is expected to be by May 2025. The FCA will publish further information in early 2025 about preapplication engagement opportunities for firms interested in applying to be a PISCES operator.

Further information

FCA Consultation Paper CP24/29: Private Intermittent Securities and Capital Exchange System:

Sandbox Arrangements

FCA press release

Response form