Pisces: City figures raise concerns over viability of private market
City figures have raised concerns over the Financial Conduct Authority’s plan for the new ‘Pisces’ market designed to allow share trading for private companies, warning that the scheme could “undermine the credibility of UK markets”.
Pisces—the Private Intermittent Securities and Capital Exchange System—was devised by the previous government as part of efforts to revive UK equity markets. The Treasury’s decision to push ahead with the scheme was revealed by City PM late last year.
The platform has been designed to allow private firms to trade shares at intervals in a style akin to the public markets.
It will act as a “stepping stone” for firms mulling a public float and offer investors an opportunity to sell their stakes in companies.
Consultation on Pisces from the FCA closed last week, but City figures have increasingly raised doubts over whether Pisces is the best way to increase capital flow through London’s equity markets.
“I just don’t see who’s going to use it,” a partner at a top venture capital firm told the FT. “It’s a bold solution to a problem that is far more complex than the protagonists are willing to understand.”
While the Treasury has modelled Pisces as an ‘intermediate step’ towards the UK’s public markets, companies themselves are unlikely to be incentivised to use the platform.
“As companies will not be able to use Pisces to raise new money – it will be for secondary trading only – it may be of limited interest to companies,” explained Delphine Currie, partner at Reed Smith.
“Whilst Pisces might indirectly have benefits for companies as the availability of an exit route may attract a wider range of investors, companies will have to wait for the introduction of the proposed public offer platforms (on which the FCA is currently consulting) before being able to raise new money more readily from the public.
“Having separate regimes for secondary trading and primary issues may lead to inefficiencies and increased costs for companies, as they will have to comply with the requirements of two separate platforms rather than a single set of standards.”
Concerns have also been raised over the weak legal protections proposed for its users, thanks to its low barrier to entry.
While Pisces will be built for institutional and professional investors, only £250,000 in net assets (excluding a primary residence) is required to qualify as a high net worth individual, leaving the door open for uninformed investors to be taken advantage of.
“The devil will be in the detail, but done badly, Pisces could be a fraudster’s charter,” said James Tyler, former FCA prosecutor and current barrister at Peters & Peters.
“Light touch regulation of the issuing of shares, on a market purportedly regulated by the FCA open to investors with a range of sophistication, creates a real risk that this follows mini-bonds and pension transfers as the next vehicle for scams on investors.”
“If this market is the medium for the next big investment scandal, or investors find the market operates unfairly, then it could really undermine the credibility of UK markets,” added Tyler.