What’s the Story?

In the last budget, the chancellor of the exchequer announced PISCES, the Periodic Intermittent Securities Capital Exchange System.

The aim is to allow unlisted companies to scale by providing liquidity and potentially reshape the shareholder base, strengthening the current core equity capital, by streamlining price clarity, the shareholder profile and the growth and income expectations.

PISCES will allow trading in unlisted shares on a defined basis yet to be developed fully. The aim is to promote the UK as a good place for fostering company growth and achieving full listed company status. The PISCES proposal is open for public consultation with HMT until 17 April 2024, with trading expected to start sometime in 2025.

PISCES has deep implications for share incentives, employee share ownership and corporate governance of these companies. It will heighten their accountability to a wider, and potentially more demanding, set of shareholders than the current founders, family companies and PE backed concerns which would otherwise be in point. It also eases the use of shares in executive compensation plans and broad-based share plans considerably, and so will help these important fast growth companies compete for high class talent against their bigger rivals.

The PISCES proposal at present is as follows:

• Unlisted companies may apply for PISCES status. No minimum or maximum market capitalisation is proposed

• Specified “initial disclosures” will be required. This market information will be much less than the information needed for a UK listing

• A tailored Market Abuse regime will apply, from the point of information disclosure until the closing date of the relevant trading window

• No new capital may be raised, so PISCES will be a secondary market for the sale and purchase of shares

• Share trading will be limited to specified windows, weekly, monthly, quarterly etc as company specified

• Trades are subject to certain limits on price; and other items

• Only defined Investors may buy and sell shares on the PISCES platform:

  • Institutional investors such as pension funds, insurance companies, PE investors etc.

  • Sophisticated, self certified, investors, typically finance professionals and high net worth persons; and

  • Employees of the company in point

• The company may set trading permissions, which limit the classes of persons allowed to trade in the company’s shares

• Company defined parameters for trades must be disclosed

• Company share buy-backs are not proposed

Why Does it Matter?

Private companies have a serious younger sibling problem with the much bigger listed companies. They represent a broad church:

• Family owned companies

• PE backed companies

• Start ups which are founder owned

• Subsidiary companies of other companies.

By incidence most unlisted UK companies are limited companies, but a minority are unlisted PLCs, where company law does not permit constraints on the transfer of their shares.

PISCES will provide the relevant companies with a visible share price and a secondary market in shares which will aid the use of shares in executive compensation and broad based share plans by providing an exit, and share price transparency.

For executive compensation the use of shares in LTIPs will mean that Performance Share Plans, Option Plans and Restricted Stock may all be seen. Indeed, the scope of LTIP vesting metrics may expand to include TSR deployed either on an absolute or relative basis (as is common among major listed companies).

Light touch corporate governance is most likely needed, even the QCA Corporate Governance code might be too heavy for these smaller fast growth companies. Similarly, the governance profession within major institutional investor and the proxy voting agencies will need to develop their thinking as to how the principles in point for major listed companies might be adapted, or not applied at all, to PISCES companies.

Newspoint View

The PISCES proposal is a welcome initiative and should be good news for these companies and the UK economy more broadly. While in principle straightforward, there remain many aspects that need to be addressed fully for it to work smoothly in practice. Hopefully the consultation process will flush these out and provide sensible solutions.

A new set of important companies will now have much easier access to operating powerful executive share incentives and strong engagement effects flowing from broad based share plans.

The group of those permitted to trade shares should include ESOP Trusts. ESOPs can also act as a closed market mechanic, and allow an exit for employees at times when the PISCES trading window is closed.

ESOPs normally have a borrowing power that can be used to obtain third party capital which can be deployed in subscribing for new issue shares. The PISCES trading arrangement will make lenders somewhat more comfortable than a vanilla loan to aid the ESOP in acquiring unlisted equity.

As PISCES will not permit new capital raised directly, the ESOP trust can do so indirectly while simultaneously feeding shares into powerful distributive share plans. This should definitely be a win-win outcome if well thought through.

Please feel free to email or call

Damian Carnell: [email protected] 

Tel: +44 (0) 7989 337118

VA Bec Bostock: [email protected]

Please share this CORPGRO information with your board or your colleagues.