On 17 December 2024, the FCA launched a consultation (CP 24/29) on its proposed regulatory framework for the Private Intermittent Securities and Capital Exchange System (PISCES). CP24/29 follows the publication of draft legislation (PISCES Regulations) last month. The PISCES Regulations will give the Financial Conduct Authority (FCA) broad powers to make rules to implement and operate the PISCES sandbox which is expected to run for five years. 

FCA approach

CP24/29 sets out the FCA's approach, objectives, proposed rules and guidance for the new secondary market within the regulatory framework to be established by the PISCES Regulations.

It is intended that PISCES will be an innovative and flexible solution for private companies, enabling investors to buy and sell existing shares during intermittent trading windows using a market platform. PISCES will incorporate elements of public markets such as multilateral trading, along with private market features; it is intended that this approach will give companies greater discretion over how and to whom their disclosures are distributed, the timing of trades, and which investors can participate in their trading events. In particular, the FCA highlights that the regulatory framework for PISCES will differ from other markets, and the civil market abuse and criminal insider dealing regimes in the UK Market Abuse Regulations (UK MAR) and Part V of the Criminal Justice Act 1993 will not directly apply to shares admitted to the PISCES platform.

A draft PISCES Sourcebook containing proposed rules and guidance for a bespoke regulatory regime is set out in Appendix 1 of CP 24/29.  Authorised firms wishing to operate a PISCES platform will need to apply to the FCA to enter the PISCES sandbox. Chapter 6 of CP 24/29 provides details on the FCA's approach to the application process; further information will be published in early 2025 for firms interested in applying to become a PISCES operator.

Tailored disclosure arrangements

Chapter 3 of CP24/29 sets out the proposed disclosure regime for PISCES. Key features of the disclosure regime include:

Core information: rules set by PISCES operators will require companies to disclose specified information ("core information"), with the aim of providing a standardised set of core information that investors would typically request in a private M&A transaction. Although the core information aims to provide a comprehensive overview of the company's operations, financial health, and potential risks; it will not be comparable to the level of information that investors may get from public companies. 

This will be supplemented by an overarching obligation on PISCES operators to ensure that their disclosure rules and arrangements are appropriate for the efficient and effective functioning of their markets; provided that this requirement is met, the FCA proposes to give PISCES operators choice in how they meet it. In addition, as part of their sandbox application, PISCES operators will be required to provide an assessment of their proposed disclosure rules and arrangements, and the FCA states that they would generally expect the nature of the PISCES operators' disclosure rules and arrangements to reflect the relative sophistication of their expected market participants.

Legitimate omission of core information: PISCES companies will be able to withhold core disclosure information if there are legitimate reasons for doing so. Legitimate reasons are set out in the rules and include where the company does not have access to the information or where the disclosure would likely prejudice the legitimate interests of the company.  PISCES operator rules would require companies to provide a summary explanation in their disclosure of any omission of core information.

Corrections and amendments: PISCES companies must disclose updated or corrected information as soon as possible where disclosures contain material mistakes or inaccuracies or material new developments occur. The company would also be required to notify the PISCES operator of any updates as soon as possible. The FCA is expected to provide further guidance on its expectation that a PISCES operator must consider whether a trading event should be postponed, suspended or terminated in the event that it becomes aware that there are material new developments, mistakes or inaccuracies.

Timing: PISCES operators must ensure that disclosures and other regulated information are made available to all investors participating in a particular trading event at the same time, until it closes. Disclosures will not have to be made public as they would be under UK MAR.  It is envisaged that investors could access disclosures in a similar way to how they access information in data rooms on private M&A transactions.

Presentation of disclosures: disclosures must be available in a concise, easily analysable, concise and comprehensive form, considering the type and nature of the investors.

Disclosure liability regime: the PISCES Regulations set out the liability regime, applying a negligence standard to core information disclosures (meaning that PISCES companies will not have liability to compensate investors if its officers reasonably believed the core information to be true and not misleading) and a recklessness or dishonest standard for certain forward-looking statements. The FCA's rules will specify that financial information forecasts and details of a company's business strategy and objectives covering at least the next 12 months will be forward-looking statements for the purposes of the liability thresholds under the PISCES Regulation.

Disclosure oversight: PISCES operators will not be required to approve PISCES companies' disclosures, nor to review or assess their clarity, reasonableness or accuracy. It is proposed that a statement to this effect be included in the market risk warning that PISCES companies give investors as part of their disclosures. PISCES operators would be expected to monitor compliance of companies with their disclosure rules (taking a proportionate and risk-based approach) and to have arrangements in place to handle complaints and for taking disciplinary action. If a serious breach is discovered, the PISCES operator would be expected to consider whether to postpone, suspend or terminate a trading event to maintain fair and orderly trading. In addition, it is proposed that PISCES operators would be required to notify the FCA where they know or suspect (or have reasonable grounds to know or suspect) that disclosures by PISCES companies constitute misleading statements under section 89 of the Financial Services Act 2012.

Market operation, manipulation and oversight

Chapter 4 of CP 24/29 outlines how PISCES operators will be required to organise and run trading events within the parameters of the PISCES Regulations. They will give PISCES operators the ability to enable companies to determine various matters, including when shares may be traded and allowing them to set floor and ceiling prices for PISCES shares. PISCES operators will also be able to allow companies to restrict who can buy their shares in "permissioned" trading events. In the FCA's view, access to trading events should be restricted only if it protects the company's legitimate commercial interests (e.g. by preventing competitors from buying shares).

Chapter 4 of CP 24/29 also sets out proposed rules for notifying trading events and pre- and post-trade data transparency requirements.

Chapter 5 of CP 24/29 discusses the role of PISCES operators in monitoring trading on their platforms. They will be required to put in place rules and arrangements to prevent and detect abusive trading practices within the PISCES sandbox. The FCA will supervise the functioning of the PISCES operators' rules and arrangements to ensure that they maintain fair and orderly trading, protect investors and preserve market integrity.  As noted above, UK MAR and Part V of the Criminal Justice Act 1993 (the criminal insider dealing regime) will not apply directly to PISCES.

Manipulative trading: it is proposed that PISCES operators have rules and measures in place to detect and prevent manipulative trading practices, and their rules must prohibit manipulative trading practice or facilitating or enabling others from undertaking such practices. Types of manipulative trading practices will not be specified, but guidance is provided to assist PISCES operators in considering whether the market abuse activities listed in UK MAR (and elsewhere) could apply to their PISCES platform. 

Disciplinary arrangements: PISCES operators will be required to have disciplinary arrangements in place to take action against breaches of their rules.

Role of intermediaries: As intermediaries will not be subject to requirements such as UK MAR, the FCA proposes guidance setting out the expectation that intermediaries will play a role in protecting market integrity and countering the risk of financial crime.

Consumer protections for eligible retail investors
Chapter 7 of CP 24/29 sets out the proposals for the consumer protections that the FCA considers appropriate to enable retail investors who are individuals and eligible to trade on PISCES to identify investments that suit their circumstances and risk appetite.

Only employees or directors of participating companies and investors who meet the definition of high net worth individual, self-certified sophisticated investors and sophisticated investors under the Financial Promotion Order 2005 (FPO) will be able to buy shares on PISCES.

Proposals include:

• Firms providing investment services to PISCES investors will be subject to the general conduct requirements in the FCA Handbook, such as acting in the client's best interests.
• The "consumer journey" requirements will apply by reference to the distribution of PISCES shares rather than their promotion.
• The proposed rules on market access for PISCES investors assume that retail investors will buy or sell PISCES shares via an intermediary, rather than interacting directly with the PISCES operator.
• Financial promotions relating to PISCES shares that are not subject to an FPO 2005 exemption must include a standardised risk warning and will be subject to similar restrictions for restricted mass market investments in the Conduct of Business Sourcebook. 
• They will also be required to include a risk warning when promoting PISCES shares to or approving promotions for PISCES investors and to present a personalised risk warning, undertake client categorisation, assess appropriateness and implement a cooling-off period before distributing PISCES shares.

HM Treasury also intends to amend the FPO 2005 to allow the use of exemptions for high net worth individuals and self-certified sophisticated investors in relation to PISCES.

Next steps

The consultation period for CP 24/29 closes on 17 February 2025, and the FCA anticipates finalising its rules and launching the PISCES sandbox by May 2025, when HM Treasury is expected to present its final statutory instrument to parliament.