Having originally launched a consultation into PISCES (Private Intermittent Securities and Capital Exchange System) at the end of 2024, the London Stock Exchange became the first operator to be approved by the Financial Conduct Authority (FCA) to run a PISCES platform at the end of August. This marks the last step before shares finally begin trading, expected this Autumn, on this world-first regulated crossover trading market.
However, although it is certainly a first – not just for the UK but around the world – and the innovation behind its creation just as laudable, there are real questions as to the effectiveness of PISCES. Similarly, while it is encouragingly intended to bolster the UK’s faltering IPO pipeline, it remains unclear whether it will be able to attract the financial clout to do so successfully in practice.
The UK’s IPO pipeline has been struggling for some time, particularly in comparison to its counterpart in the US. Only recently Wall Street recovered from its own IPO slowdown to record its busiest week in the last four years. As more and more companies seek a listing on the US stock exchange and elsewhere, the UK has seen itself somewhat left behind.
It is no surprise, then, that the Government has been looking for a way to improve the UK capital markets’ situation and to attract the additional investment and capital that will be needed to do so. The Government’s hope is that the PISCES platform will be the vehicle for further investment that can give the UK IPO pipeline the boost it desperately needs.
There is some doubt, however, as to whether PISCES will be able to achieve this goal, with some potentially fatal flaws in the way the platform has been set up. Firstly, there is the fact that PISCES was specifically designed for secondary trading. It is hard to see how this will not fail to limit the interest that large companies have in the market. Equally, most companies see floating on the stock market as an opportunity
to raise funds, but their ability to do so on PISCES is again likely to be stymied by the lack of primary issues.
Moreover, the potential appeal of PISCES has also been diminished by the decision to limit access to retail investors. Access will be restricted to employees of the company, institutional investors and qualifying high net worth and sophisticated investors under the Financial Promotion Order. Again, it is hard to see how reducing the number of investors eligible or intended to use PISCES will do anything other than hamper its efficacy further.
Share incentive schemes for long-serving employees are commonly used by many businesses, both to attract and retain top-quality talent in senior management and to provide a reward for long-term company stalwarts.
However, these schemes would be put at risk by PISCES, which offers all employees the opportunity to buy shares. Of course, the clearest way for companies to limit this would be for them to place restrictions on who can buy their shares. But doing so would further reduce the pool of potential PISCES investors and once more limit the platform’s effectiveness in raising capital. Despite these structural difficulties, much has been made of the fact PISCES is the first market of its kind in the world. It is true that no other jurisdiction has instituted a regulated crossover market. But this fact is in itself telling. The inherent weakness of a secondary-only market, as well as the rules narrowing the scope of who will use this platform, are clear reasons as to why it has not been tried before.
Time will tell whether PISCES will shrug off these issues. Many will hope it does, but the platform seems on shaky ground from the start. The Government has identified a serious issue that needs to be rectified, but it’s hard to see how PISCES will achieve this. There are little reason for major companies to want access to the platform and heavy restrictions preventing other potential investors from getting involved, it seems that PISCES might well lack the appeal to gain the capital investment the economy needs.
