In an effort to facilitate trading in private company shares, the U.K.’s Financial Conduct Authority (FCA) is consulting on a regime to facilitate the creation of private stock markets.
On Tuesday, the regulator published a consultation paper on a proposed regime to enable private share trading platforms, known as the Private Intermittent Securities and Capital Exchange System (PISCES).
PISCES aims to create an opportunity for more investors to diversify their portfolios by taking stakes in private companies, while also improving access to capital for firms that chose to stay private.
The proposed regime envisions allowing for intermittent trading as well as allowing existing shareholders, such as private company employees, to trade with institutional investors and certain retail investors (sophisticated and high-net worth investors).
While the new regime would allow trading similar to public markets, it also proposes to retain certain advantages of private companies, such as giving issuers greater control over disclosure, when trading occurs and which investors can participate in trading.
Additionally, the existing trading rules, such as the rules against market abuse, wouldn’t apply in the PISCES regime, unless trading in that environment spilled over and impacted the value of public securities.
“We want to build on and enhance private market practices and risk tolerances rather than using public market standards as a starting point for designing the regulatory framework. This entails some bold choices, for example in not requiring issuers to disclose inside information,” the paper said.
The proposed platform will be developed using a regulatory sandbox for financial markets infrastructure, which will allow regulators to more closely oversee its initial operation and to fine tune the rules in this area before adopting a permanent regime for private share trading. The sandbox is expected to run for five years.
In the sandbox environment, firms that want to run a private share trading platform will have to apply to the FCA for permission, and once approved, they would be able to offer intermittent trading in private shares.
“Our proposals will enable a variety of PISCES models to be tested, stimulating innovation and competition,” the FCA said in the paper.
The U.K. Treasury said it intends to introduce a legal framework for the regime in Parliament by May 2025, and that the FCA would issue final rules after that.
“Next year we will ring the bell on a new private stock market that could transform how private companies access funds and grow,” said Simon Walls, interim executive director of markets at the FCA, in a release. “It will offer investors more access and a greater confidence to invest in private companies and could act as a stepping stone to public markets for those firms.”
“Today’s consultation marks a significant step towards delivery of the new market next year and sits alongside our wider programme of reforms to boost competitiveness and investment,” added Tulip Siddiq, economic secretary to the U.K. Treasury.
The proposal is out for comment until Feb. 17, 2025.