PISCES: A Game-Changer for UK Capital Markets

PISCES: A Game-Changer for UK Capital Markets

Private Intermittent Securities and Capital Exchange System (PISCES), a groundbreaking platform designed to facilitate trading in private company shares. Set to launch later this year, PISCES is poised to redefine the interface between private and public markets, addressing the growing trend of companies delaying IPOs.

A Struggling UK Capital Market

The UK’s capital markets have been under pressure. Listings on the London Stock Exchange (LSE) and AIM plummeted to historic lows in 2024, with IPO activity dropping by 60% compared to the 2015–2019 average (LSE data). Brexit, regulatory burdens, and competition from New York and European hubs like Amsterdam have eroded London’s appeal as a listing destination. Meanwhile, private companies are staying private longer, the median time to IPO for UK startups has risen from 5.2 years in 2015 to 8.7 years in 2024. This trend has starved public markets of fresh opportunities while trapping liquidity in private hands.

PISCES, first proposed in 2022 as part of the Edinburgh Reforms, aims to address this liquidity bottleneck. By creating a regulated secondary market for private company shares, it promises to unlock value for shareholders, boost growth for startups, and strengthen the UK’s IPO pipeline.

PISCES operates as a secondary market, enabling intermittent trading windows for shares in private companies not listed on public markets. Unlike traditional exchanges, it blends public market transparency with private market flexibility.

Key features include:

- Intermittent Trading Windows: Companies and PISCES operators (FCA-approved firms, potentially including the LSE) set schedules for trading events, ranging from weekly to biannual auctions.

- Bespoke Regulation: A tailored regime, tested in a five-year Financial Market Infrastructure (FMI) sandbox, exempts PISCES from standard Market Abuse Regulation (MAR) and public disclosure requirements. Instead, disclosures are limited to participating investors, reducing compliance burdens.

- Eligible Participants: Initially restricted to institutional investors, high net-worth individuals, self-certified sophisticated investors, and company employees. Retail investor access may expand post-sandbox.

- Stamp Duty Exemption: Announced in the 2024 Autumn Budget, PISCES trades are exempt from stamp duty and stamp duty reserve tax, a significant incentive compared to public market trades (0.5% levy).

- Flexible Admission: PISCES operators set their own admission criteria, allowing companies to control price ranges and investor types, preserving shareholder control.

The FCA estimates PISCES could facilitate £10–15 billion in annual trading volume within three years, based on private market transaction data from 2020–2024 (FCA CP24/29). This could inject liquidity into a market where 70% of UK private company shares are held by founders, employees, or early-stage investors.

A Liquidity Lifeline for Employees and Early Investors

PISCES could revolutionize employee compensation in UK startups. Currently, employee share options are often illiquid until an IPO or acquisition, with 85% of UK tech workers holding untradeable equity. PISCES’s stamp duty exemption and tax-advantaged share option exercises make it a game-changer for employees, enabling them to cash out without waiting for a liquidity event. This could boost UK startup hiring competitiveness, attracting talent in a market where 40% of tech professionals cite equity liquidity as a top concern.

For early-stage investors, PISCES offers an exit route without the due diligence costs of private sales, which can consume 3–5% of deal value. This could accelerate capital recycling, with venture capital firms reinvesting gains into new startups, potentially increasing UK VC deal volume by 15–20% annually.

A Testing Ground for IPO Readiness

PISCES acts as a “stepping stone” to public markets. By exposing private companies to regulated trading without full public market scrutiny, it allows firms to test investor appetite and refine governance structures. Data from the US, where private share platforms like SharesPost exist, shows that 60% of companies using secondary markets go public within three years, compared to 40% for others. PISCES could thus boost the UK’s IPO pipeline, countering the 2024 listing drought.

A Global Magnet for Non-UK Companies

Unlike traditional UK exchanges, PISCES is open to overseas private companies, provided their shares are freely transferable. With the EU’s fragmented private markets and the US’s restrictive SEC regulations on private share trading, PISCES could position London as a global hub for private company liquidity. Early indications suggest interest from European tech unicorns, with 12 firms reportedly in talks with PISCES operators. This could drive £2–3 billion in foreign investment annually.

Unintended Consequences

Liquidity Illusion and Valuation Volatility

While PISCES promises liquidity, its intermittent trading model may fall short. Auction-based trading risks low participation, as seen in early US private market platforms where 30% of auctions failed to meet minimum order sizes. If investor demand is weak, companies could face disappointing valuations, damaging their reputation pre-IPO. “Real-time pricing” could also expose startups to sharper valuation swings, especially in volatile markets like 2025’s tariff-driven uncertainty.

Moreover, the absence of a full market abuse regime raises red flags. The FCA acknowledges that insider dealing protections are weaker on PISCES, relying on operator-enforced “private perimeters” for disclosures. This could expose investors to asymmetric information risks, deterring institutional participation. 70% of UK institutional fund managers require strict liquidity and transparency criteria, which PISCES may not meet.

Banking Sector Disruption

PISCES threatens traditional investment banks, which charge 5% fees for private placements. By offering a cheaper alternative, PISCES could divert £500 million in annual fees to exchange operators like the LSE. Bankers’ reluctance to recommend PISCES, could slow adoption, creating a feedback loop where low liquidity undermines the platform’s appeal. Conversely, banks adapting to PISCES could pivot to advisory roles, but this transition may take years, leaving a revenue gap in 2026–2027.

FOMO Investing and Retail Risks

As PISCES scales, potential retail investor access raises concerns about speculative “FOMO” investing. PISCES’s hype could fuel irrational exuberance, with retail investors chasing high-growth startups without understanding risks. Private companies carry higher failure rates (30% within five years) and lower transparency than public firms. The FCA’s risk warnings may not suffice, especially if operators prioritize trading volume over investor education.

The Bigger Picture: Strategic Implications

PISCES is more than a trading platform, it’s a litmus test for the UK’s ability to innovate in a post-Brexit financial landscape. Its success hinges on balancing flexibility with investor protection, a challenge given the FCA’s limited oversight of insider risks. For companies, PISCES offers a low-cost liquidity option but risks exposing them to market volatility without the safety net of public market regulations. For investors, the platform democratizes access to high-growth firms but demands greater due diligence.

The real wildcard is global competition. If the US or EU develop rival platforms with stronger investor protections, PISCES could lose its edge. The FCA must also navigate political pressures.

PISCES is a bold experiment with the potential to reshape UK capital markets, but its success is not guaranteed. Hidden opportunities lie in its ability to empower employees, accelerate startup growth, and attract global firms. By 2030, PISCES could either cement London’s status as a financial innovator or serve as a cautionary tale of overambition. For TheBrink readers, the key takeaway is clear: PISCES is a high-stakes bet that demands close scrutiny as it unfolds.

-Chetan Desai (chedesai@gmail.com)