Five ways the PISCES private stock market might change UK venture capital

The PISCES rules are now in place (HLaw has been following the topic closely) and qualifying operators, such as the London Stock Exchange, will be preparing to launch the first PISCES platforms.  These operators will be admitted into and building within the five-year regulatory sandbox established by the PISCES regulations that came into force on 5 June 2025.

The ‘Private Intermittent Securities and Capital Exchange System’ is a new type of private stock market – described by the FCA as ‘private-plus’ – where platforms permit shares in participating private companies to be acquired by participating investors during intermittent trading windows.  Private companies which are registered in the UK (and which have not admitted their shares for trading on another trading venue or multilateral system) are the intended participants in PISCES.  Notably, however, the PISCES regulations do not rule out participation by overseas companies.

The PISCES regulations go well beyond what is expected of private companies generally in the UK when registering share transfers, but do not go as far as imposing the kind of regulatory burden which listed companies must bear.

In particular, and as discussed in detail by HLaw HERE, although there is a disclosure regime for PISCES, it is fairly limited and was cut back from earlier drafts of what are now the 2025 PISCES regulations.  Crucially, PISCES does not have a civil or criminal insider dealing regime – i.e. trading on insider information will not be illegal per se – but the criminal market manipulation regime still applies, as do existing regimes for anti-money laundering and counter-terrorism, and fraud cuts through all of course.  As the FCA have said, public market standards were not used as a starting point for designing the regulatory framework.

The hope of the UK government is that PISCES will create liquidity in private company markets and be a shot in the arm for the UK tech sector, famously prone to losing later stage companies to the US public markets and overseas buyers generally.  Companies can’t use the platforms for raising capital themselves (or buying back their own shares), but founders and management teams will hope that the emergence of new UK markets for secondary share sales will help attract investors wishing to make primary investments into the company.  As a further incentive, share sales on PISCES will be exempt from stamp duty and SDRT (as reported by HLaw here).

If the PISCES platforms take off and attract substantive trading, then perhaps there will be some resulting noteworthy changes in market practice within the UK venture tech scene.

1. A shot in the arm for mid to late stage UK tech?

Later stage UK private companies have tended to re-domicile in the US to fish in a larger pool of capital and eventually seek to list on the US public markets; or they have been acquired by an American buyer with deeper pockets.  What just about everyone in UK tech wants is for larger numbers of ventures to get through the seed, series A and series B funding rounds to reach series C and beyond, with real prospects for wholesale market adoption of their products and for those companies to stay in the UK.

It goes without saying that if PISCES can help achieve that in any meaningful way, then this is a very good thing indeed for the UK.  Only qualifying investors (institutional investors, high-net-worth and sophisticated investors, etc.) will be able to acquire shares on PISCES but if the new PISCES platforms take off, we expect there to be calls to widen the scope of eligible participants.

One of the gloomier themes of the moment in UK corporate finance is the navel-gazing that has come from payments business Wise’s decision to switch its primary listing to New York.  Ashtead Group made the same decision at the end of last year.  The drugmaker Indivior abandoned its UK listing a few weeks ago.  Wise’s CEO has said the move will “drive greater awareness of Wise in the US, the biggest market opportunity in the world for our products today, and enabling better access to the world’s deepest and most liquid capital market.”

PISCES isn’t going to stop moves of that kind from happening.  What it could do, perhaps, is be part of building a much more robust bridge between private and public: the practicalities of running private companies going through the funding rounds and those of running a publicly listed company are very different indeed.  This is what is meant by ‘private-plus’.

Similar things have been said historically about the AIM market of course, where the regulatory regime is lighter than that applicable to a Main Market listing (although still fundamentally different to that of the PISCES regime), but it is not common for AIM-listed companies to move up to the Main Market and AIM is a market that continues to float through the doldrums generally.

2. Revamping corporate and equity docs

Companies participating in PISCES trading will most likely have to overhaul their constitutional and equity documents in some substantive ways.  Articles of association will need to be amended to write in PISCES transfers as permitted transfers free from pre-emption rights.  Investors will have a thing or two to say about that and may want the consent rights set out in the shareholders’ agreement changed.  EMI option schemes and CSOPs will need to be changed to allow for PISCES trading windows to be events of exercise, a subject on which HLaw has written here.  And so on.

As always, careful drafting will be required and not least because PISCES operators are provided with flexibility as to how they arrange trading events, which can differ company to company and could be:

• periodic auctions;
• occasional, time-limited periods of continuous trading; or
• run monthly, quarterly, annually, or on an ad hoc basis.

3. Pre-emption rights on transfer for investors and leaver provisions

Pre-emption rights on transfer are standard form on UK venture capital transactions and feature in the BVCA model documents, although there are various formulations of how they operate and one often sees a great many differences in the drafting across any portfolio of companies.  In contrast to pre-emption rights on issue, if you don’t have any written in your articles of association or elsewhere, then there are no such rights conferred by UK company law to fall back on or to disapply.  As above, investors and stakeholders wanting their investee companies to participate on a PISCES platform will be minded to examine what the share transfer provisions say in the relevant company’s articles of association.

We think that examination is likely to result in companies amending their articles to add transfers on a PISCES platform as one of the categories of ‘permitted transfers’ to which the pre-emption rights on transfer do not apply.  Perhaps the market will shift even further and – for investors in particular – there will be pressure to follow the American style and have no pre-emption rights on transfer applying to investors at all.  By contrast however, existing investors may well not want to lose the option of buying up shares being sold by employees.

On a linked but standalone subject, perhaps if PISCES platforms take off, leaver and vesting provisions for founders and key management (invariably set out in the company’s articles of association) will be amended so as to allow for compulsory share sales triggered by departures to occur through PISCES during selected trading windows.  That will require careful, bespoke drafting.

4. A better view through to liquidity for SEIS, EIS and VCT investors (after the holding period)

If there is a PISCES driven sea change in liquidity for shares in private companies, users of the UK’s world-leading venture capital tax reliefs – SEIS, EIS and VCT – may be amongst the beneficiaries, although noting of course that reliefs are lost if the relevant shares are sold within a (three for SEIS and EIS and five for VCT) year holding period (and we do not presume that HMRC will want to create an exception for PISCES).

The reliefs have always been particularly attractive on the way in when investing – SEIS for instance having that eye-catching 50% income tax deduction, 30% for EIS and VCT, and no capital gains tax for any of them – but the lack of liquidity in private companies has always been a concern.  Perhaps PISCES – when platforms are fully functioning and some success stories are reported – will drive a new wave of investment using these tax efficient schemes.  That said, yet more compliance anxiety on these subjects will not be welcome.

5. Secondaries as an indirect way of financing bridge loans

Participating companies can’t use PISCES platforms for raising capital.  In an irony that won’t be lost on hard-pressed founders, companies may well be asked to participate so as to help investors cash in or out and companies will have to pay the costs of doing so, as well as perhaps the costs of having to make various changes to their corporate and equity documents as flagged above.

Some of the more creative management teams might use a PISCES trade to help finance a bridge financing round.  The funds would come from the selling shareholders, who are unlikely to be institutional investors cashing out but could be employees and the management team themselves (or cooperative leavers, perhaps and if they qualify).  So, the trade would happen on PISCES, the new qualifying investor would buy the shares and agree to pay the proceeds to the employee sellers.  Some of those proceeds would then be loaned back to the company on an unsecured basis with a reasonably-attractive rate of interest, to be paid back perhaps on the earlier to occur of a future long stop date and the next priced equity round.

We already see this mechanic taking place occasionally with traditional non-PISCES secondaries.  Presumably at this stage it could still be made to work with a PISCES transfer, although the loan part of the mechanic would need to be happening off platform.  Careful advice on various fronts (including tax) and given by reference to the specific facts ought always prudently to be obtained when planning any transaction of this kind.

We at HLaw will continue to follow PISCES closely as more stakeholders explore the sandbox environment in which PISCES currently operates.  If you have any PISCES-related queries then do please reach out to a member of the team.

This Insight piece was written by Henry Humphreys with input from Alina Merchant-Mohamed.  Do please reach out to a member of the team if you have questions or queries relating to any of the matters discussed above.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website. None of the above constitutes legal advice and is not to be relied upon. Much of the above will no doubt fall out of date and conflict with future law and practice one day. None of the above should be relied upon. Always seek your own independent professional advice.

Humphreys Law