Following Chancellor Rachel Reeves’s introduction of the Private Intermittent Securities and Capital Exchange System (Pisces) last week, the investment community has raised questions on how it will operate alongside the existing public offerings and the liquidity of the market.
Pisces would create a regulated market for private shares, acting as a “stepping stone” to listing on public markets and allowing investors access to further growth stage companies, according to the Treasury. The concept will begin with a five-year sandbox period to determine if it should become a permanent piece of UK legislation.
During this time, it will be open only to institutional investors and operate at intermittent trading windows. Companies will not be able to buy back shares, and will not facilitate capital raising through new shares.
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Dan Coatsworth, investment analyst at AJ Bell, said a perk of the market could be allowing private companies to get used to the feeling of some of the business being owned by others, which can often be a hurdle in listing publicly.
“It might act as a stepping stone towards a public stock listing, getting them used to regular financial reporting, transparency as a business, and understanding that a company is run for the best interests of shareholders, not the board of directors,” Coatsworth said.
“It could also encourage their staff to develop a saving and investing habit. One of the biggest stumbling blocks for private company share ownership is that staff are often put off by the general inability to sell those shares at regular intervals. A lot of private companies won’t offer the ability for staff to trade shares, meaning some people are stuck owning the equity until the business either lists on a public market or there is an internal event where they can sell down.”
In the past, private markets have been known to be relatively illiquid, with investors making a five to seven year commitment of their funds in order to be able to access the market. While this will be a slightly different system to the trading windows offered with Pisces, some have still raised questions on how liquid a private company can be in reality.
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Phil Jenkins, CEO of international corporate finance firm Centrus, said: “In theory, this is an interesting and exciting concept – liquidity for private companies is often a major challenge given the costs and obligations associated with a main market listing. As a growing business, we would certainly be interested in accessing long term and patient capital to support our growth ambitions.
“However, questions remain regarding Pisces’s liquidity source. Existing UK listed markets already struggle to attract domestic and international investors. It’s unclear why these same investors would suddenly gravitate towards less-tradable private firm stakes. Without liquidity, will Pisces truly empower smaller firms to scale towards a size suitable for a traditional IPO?”
Coatsworth added that while Pisces could improve liquidity in theory, the trading windows would give companies control over when changes in shares happened, as opposed to always being able to trade during market hours on public markets.
“Disclosure requirements will be different to public markets in that investors taking parting in a Pisces trading event should be told about company-specific information, but details won’t have to be made public. That’s different to previous proposals under the former Conservative government,” Coatsworth said.
While Pisces offers an alternative to institutional investors to public markets, many investors are seeing the regulation not as competition for public markets, but as a stepping stone.
Karen Northey, director of corporate affairs at the Investment Association, said: “We want to ensure the UK remains an attractive place for companies to list, invest and do business. This requires a rebalancing of attitude towards risk. Proposals to broaden access to private markets through Pisces and plans to make the UK a leading centre for green finance indicate a positive shift towards a growth-focused mindset.”
