The FCA is approaching its design of the world’s first regulated private/public crossover market with a “private plus” rather than a “public minus” mindset.

By Mark Austin, Rob Moulton, James Inness, Anna Ngo, Frederick Gardner, and Johannes Poon

On 17 December 2024, the FCA launched a consultation on its proposed regulatory framework for the Private Intermittent Securities and Capital Exchange System (PISCES) (CP24/29). This consultation follows the publication of HM Treasury’s draft statutory instrument, which is expected to be introduced by May 2025 (for more information, see our blog post It’s in the Stars — HM Treasury Recasts and Pushes Forward PISCES). The new legislation will empower the FCA to implement and oversee the operation of the PISCES sandbox, which is expected to run for five years, including developing a tailored disclosure regime.

CP24/29 contains the FCA’s proposed rules and guidance for the PISCES sandbox. The FCA (and HM Treasury) recognise that the perfect should not be the enemy of the good at this stage, and they anticipate modifying and iterating the regulatory framework over the course of operating the sandbox.

The three key design principles are:

1. A “private plus” market
2. Optionality for PISCES operators, in terms of the platform structure
3. Appropriate investor protection, given that certain categories of retail investors will be able to access the platform

The consultation 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.

Key Proposals

Disclosure Arrangements

The FCA has moved away from a market abuse regime and is developing a tailored disclosure regime for PISCES based on the due diligence approach in private markets, as follows:

• Core Information: PISCES operators are to require that companies traded on their platforms disclose a set of standardised core information (such as business overview, financial statements, capital structure, and details of any price parameters for the PISCES trading event). The core information will also include the PISCES company’s directors’ trading intentions in a PISCES trading event and the identification of major shareholders (i.e., holding above 10%).

• Additional Information: The disclosure of such core information would be supplemented by an overarching requirement that a PISCES operator must ensure that its disclosure arrangements are appropriate for the efficient and effective functioning of their market. PISCES operators may choose how they meet this requirement. Options include (i) a “sweeper model”, under which a PISCES company discloses any other information relevant for informing PISCES investors, or (ii) an “ask model”, under which a PISCES company provides information in response to specific requests by PISCES investors. We believe the latter is likely to be the most appropriate.

• Availability: PISCES operators will be required to ensure these disclosures are made available to investors participating in the PISCES trading event (until the end of the trading event); otherwise, there will be no requirement to make the information public. PISCES operators will, however, be required to make public certain notifications of an upcoming PISCES trading event so that PISCES members become aware that a trading event will be taking place.

• Post-Trade Event Disclosures: PISCES companies will be required to disclose dealings by directors and major shareholders after the PISCES trading event to those investors who were entitled to access the event.

• Forward-Looking Statements: Forecasts of financial information and details of the PISCES company’s business strategy and objectives (both covering at least the next 12 months), which are identified as forward-looking statements in the core information disclosure, will be subject to a higher liability standard (recklessness or dishonesty).

PISCES Operator Requirements

The consultation paper outlines the FCA’s proposals for how PISCES operators must organise and run trading events, with the key objective of maintaining fair and orderly markets on PISCES.

In particular:

• PISCES operators will need to have arrangements in place to monitor that PISCES companies’ disclosures comply with their disclosure rules.
• PISCES operators will need to put in place rules and arrangements to mitigate the risk of manipulative trading practices occurring on their platforms. PISCES operators will also be responsible for monitoring, investigating, and acting against manipulative trading practices.

Trading Intermediary Requirements

The FCA proposes certain investor protections for retail investors who are eligible to trade on PISCES.

Intermediaries will be subject to requirements regarding the promotion and distribution of PISCES shares to retail investors (including the provision of risk warnings, eligibility checks, and other “consumer duty” requirements).