FCA consults on framework for PISCES sandbox

What does this mean?

PISCES platforms will act as a new type of secondary market for trading shares in private companies on an intermittent basis. In this context, the FCA proposes to define ‘intermittent’ as meaning ‘occasional, not frequent and of limited duration’.

The FCA notes that the role private markets play in providing capital to companies has grown in recent years. An aim for PISCES is to provide an efficient and transparent complementary solution to private market transactions which can also support companies to grow and reach the point of initial public offering. The FCA therefore proposes to use private markets requirements, rather than public markets standards, as the starting point for the PISCES sandbox framework.

Trading shares of PISCES companies will be limited to eligible investors that will include institutional and professional investors, high-net-worth individuals, sophisticated and self-certified sophisticated investors, and ‘qualifying investors’. Qualifying investors will include retail consumers who are employees of PISCES companies, subject to meeting certain definitions. 

PISCES platforms will not be trading venues so many obligations under the existing regulatory framework will not apply to PISCES operators, companies or investors. The FCA’s CP sets out a bespoke regulatory framework for the PISCES sandbox, including the following elements:

A tailored disclosure regime

• Operators’ rules must require companies to disclose a set of core information to investors participating in a PISCES trading event. This will include financial information, business and management overview, risk factors, directors’ trading intentions, major shareholders, and forward-looking information. The draft rules permit companies to omit some core information if they can justify why, and establish a bespoke liability regime.

• PISCES companies will be permitted to set price parameters but must include in their core information disclosure a range of details about how the valuation was arrived at

• In addition to the core information disclosures, PISCES operators will be subject to an overarching requirement that their disclosure rules must be appropriate for the efficient and effective functioning of their market, recognising that certain information above the core information may be needed for a particular PISCES company, its sector, or circumstances.

Risk warnings

• PISCES operators will need to include a standardised risk warning as part of any disclosure information by companies disseminated on their platforms. The risk warning would include the fact that PISCES company disclosures are not required to be approved by a PISCES operator or the FCA. It would also note that other investors may possess relevant non-disclosed information and that price parameters may have been applied to the shares traded on PISCES.

A bespoke trade transparency regime

• PISCES operators will need to implement pre- and post-trade transparency rules to ensure fair and orderly markets. This will include bid and offer prices, depth of trading interest, price, volume and time of transaction.

• The FCA will not prescribe a methodology for operators to disseminate trade transparency information, but their arrangements must be robust. Operators will also be required to keep order book records.

  Operational requirements for PISCES operators

• Operators must have procedures for ensuring disclosure information is available to eligible investors up to and during a trading event.

• Operators will be able to permit PISCES companies to restrict access to a trading event (a ‘permissioned trading event’) under certain circumstances. This could include restricting competitors from participating, restricting trade execution sizes, or only permitting company employees to buy or sell shares.

• PISCES operators will be required to have complaints and disciplinary action procedures, and must be able to postpone, suspend or terminate a trading event.

• PISCES operators will be responsible for monitoring, investigating and acting against manipulative trading practices on their platform, and must notify FCA of breaches of rules relevant to manipulative trading or criminal conduct.

What do firms need to do?

The PISCES sandbox is an important element of the Government and FCA’s work on reforming the UK’s wholesale markets and wider initiatives to support UK companies to scale and grow.

The FCA underlines the potential for the regulatory framework for PISCES to change during the sandbox period, which will run for five years, to ensure it meets its intended objectives.

Firms wanting to apply to operate a PISCES platform will need to assess whether they have the correct Part 4A permissions (or are exempt, in the case of recognised investment exchanges). They will need to demonstrate that they have assessed the risks of operating a PISCES platform and put in place appropriate mitigating steps. Firms must also be able to demonstrate that they are able to comply with the PISCES sandbox requirements as described in the CP.

Private companies that are considering participating in PISCES platforms will need to consider their ability to meet the requirements, and should consider the potential benefits and risks of using a PISCES platform compared with private transactions or public markets.

Firms wishing to provide intermediated access to a PISCES platform will need to comply with a range of consumer protection requirements. These requirements will be largely based on existing concepts in the FCA’s financial promotion rules.

Investors who may be eligible to participate in PISCES trading events should consider whether the balance of protections afforded by the regime compared with public markets is in line with their risk appetite and the potential benefits and risks of participating in PISCES trading events.

Next steps

Comments should be submitted to the FCA by 17 February 2025.

The FCA will publish its final rules following publication of HMT’s final legislative instrument which is expected in May 2025.

In the meantime, the FCA will offer pre-application engagement with firms interested in submitting a PISCES operator application.