A clearer picture of the new PISCES market for private company share trading is emerging. Following the publication of the draft PISCES Regulations by HM Treasury (see our briefing here), the Financial Conduct Authority has published a consultation on its draft PISCES Sourcebook, including the core disclosure requirements for participating companies. The rules are aimed, for the most part, at PISCES operators, who will be responsible for setting the requirements for their platform within the parameters laid down by the FCA, as well as monitoring compliance with their rules and imposing sanctions when those rules are breached. This briefing provides a summary of the key points from the FCA’s consultation.
The UK Market Abuse Regulation will not apply to PISCES
The FCA states that it wants to build on private market practices and risk tolerance: a “private-plus” mindset, rather than using the public markets as its model. An example of this philosophy at work is the fact that MAR will not apply to PISCES. This means that there will be no obligation to disclosure inside information and there will be no civil market abuse regime. Instead it is proposed that operators will set their own disclosure rules (see below) and be under an obligation to have monitoring arrangements in place to detect breaches of their rules (including manipulative trading practices) and conduct prohibited under the criminal market manipulation regime (s.89 and s.90 Financial Service Act 2012) which will apply to PISCES.
Disclosure requirements – core information supplemented by operator requirements
Operators must require participating companies to make “core disclosures” ahead of trading windows. A table of this core information is set out in the consultation (pg 19) and includes:
- a business overview;
- a management overview;
- financial statements and related audit report;
- information about the directors, including in relation to their dealings in the company’s shares;
- key material risk factors specific to the PISCES company; and
- forward looking information – forecasts of financial information and details of any business strategy or obligations for at least the next 12 months.
The FCA notes that this core information may not give sufficient information to investors to enable them to trade in the shares of a PISCES company so the draft rules put operators under an obligation to fill this gap via an overarching obligation to ensure that their disclosure rules, taken as a whole, are appropriate for their market. The FCA’s draft guidance suggests that this may be achieved in a variety of ways including a “sweeper-model” where the operator rules would require further disclosure in general terms, for example information the board of directors of a PISCES company considers relevant, or an “ask-model” where the operator would design a Q&A function that investors could use to request further information from a PISCES company.
The disclosure would not be public and would only be made available to investors participating in a particular trading event.
Under the draft PISCES Regulations, core disclosures will be subject to a negligence liability standard (meaning the company may be liable for negligent misstatements or omissions) while forward-looking information and any additional (non-core) information disclosed by PISCES companies and relied on by investors will only be subject to a lower fraud standard (with company liability where a director has known or been reckless about a misleading statement).
Trading events – more control for PISCES companies
One of the FCA’s stated objectives in formulating the rules relating to trading events is to allow PISCES companies a higher degree of control over the trading of their shares than is possible for shares admitted to public markets.
As such, it is proposed that operator rules would need to enable PISCES companies to:
- set price parameters (floor or ceiling prices);
- allow only permissioned trading events (where only certain investors are permitted to participate in trading events) if it serves the purpose of promoting or protecting the legitimate commercial interest of the company. The FCA does not specify what these would be in its draft rules but the intention is to prevent unreasonable and arbitrary criteria being used to prevent investors from accessing trading events. Examples of legitimate interests given in the consultation include not allowing competitors to participate in a trading event, and restricting trade execution sizes.
Disciplinary arrangements – operators on the front line
Under the proposed FCA rules, operators will be responsible for taking disciplinary action against PISCES companies, members and participants when their rules are breached. As such, it is proposed that an operator’s rules must enable it to:
- refuse or cancel admission of a PISCES company’s shares if it has serious grounds to conclude that the company is not or is no longer, willing or able to comply with its rules;
- postpone or suspend trading when it has reason to believe that there has been, or is likely to be, a significant breach of its rules or its own obligations in relation to operating a PISCES platform;
- terminate a PISCES trading event where it appears that a breach, or likely breach, is sufficiently serious to be likely to cause significant damage to the interests of investors or the orderly function of the PISCES; and
- make public any decision to postpone, suspend or terminate and notify the FCA accordingly.
Next steps and timing
The consultation closes on 17 February 2025.
The FCA will publish its final rules after HM Treasury has laid its final statutory instrument before Parliament. This is expected to be by May 2025.
Early in 2025, the FCA will publish further information about pre-application opportunities for firms interested in applying to be a PISCES operator.
For further information, please contact:
James Wootton, Partner, Linklaters
james.wootton@linklaters.com
