Sink or swim? Pressure on PISCES to deliver liquidity in private-plus market

The UK’s Private Intermittent Securities and Capital Exchange System (“PISCES”) regulatory sandbox has been launched in an experiment set to run until at least 2030.  We at HLaw have reported extensively on the subject, including as to the ways in which PISCES might change market practice within UK venture capital.  This is one of the most high-profile regulatory developments since the launch of AIM in 1995, as a sub-market to the London Stock Exchange (“LSE”).  AIM has just celebrated its 30^th birthday but has long since passed its heyday in the years prior to the 2008 financial crisis.

The UK government clearly hopes that creating what the FCA has called ‘private-plus’ markets for secondary sales of shares in private limited companies will be a major boost for the UK venture tech scene and then more generally into the wider economy.  The theory goes that developing secondary share sale markets here will give investors a clearer line of sight to getting some multiple of their funds back (rather than just waiting until exit) and they will be more likely to make their investments in the first place. This in turn boosts the attractiveness of the UK as somewhere to start a new business and may mean that fewer UK businesses do the Delaware-flip and relocate to the US in search of a larger pool of finance, an IPO, or both.

Will schools of investors take the bait and push their portfolio companies to participate in PISCES?  That is hard to say at this point as the first PISCES platforms will not emerge from their sandbox until later on in 2025.  Those platforms will, however, face various practical challenges.

1. Will the liquidity be there?

The great unknown is the extent to which there will be sufficient buyers and sellers of shares to form an active market.  For the most valuable companies – likely at time of writing to be the later stage FinTech companies and one or two in life sciences and pharmaceuticals – the periodic trading windows offered by a PISCES platform may well be attractive in terms of bringing order and standardisation to the flow of secondary trades that already exists.  Revolut’s periodic secondary share sales are now front page news, for instance.  Just a few days ago the Financial Times was reporting that secondary share sales by insiders at Nvidia had surpassed $1 billion in value, those taking place in the US of course.

Will similar levels of interest be there for those businesses not performing as well and those still making their way through earlier rounds of funding?  We think likely not.  You only need to look at the rapidly declining number of AIM participants – falling recently to the lowest levels since 2001 –  to see just how little interest there is from companies – and by extension, investors – in trading on a secondary market. With exorbitant costs of participation, outdated and stringent regulation and more compelling overseas listing options, AIM’s liquidity is rapidly drying up.

The danger is that PISCES faces a similar fate.  Sparsely supported trading windows will mean that price discovery will suffer, and sellers will be forced to accept lower valuations or not sell at all.  If the order book is thin, what will be the point of a company incurring the cost and spending the management time dealing with participation on a PISCES platform?  Especially given that secondary sales can still be completed off platform between a willing buyer and seller.

2. What are the costs?

And what will it cost for companies to participate on PISCES?  We don’t yet know, but clearly there will be costs associated with participation for the company to bear.  These will likely include:

• fees payable to the PISCES platform for participating and for running the trading windows – details of those are not yet known;
• the professional costs associated with amending the company’s corporate documents to inter alia allow for PISCES transfers to be permitted transfers and for PISCES trading windows to be triggers for exercise under EMI schemes and CSOPs (see our prior thoughts on that HERE);
• the professional costs to be incurred in the process of complying with the PISCES disclosure requirements, which are not as onerous as those with which listed companies must comply but go a lot further than what is ordinarily required of a private company when its shares are being transferred off platform; and
• the management time spent dealing with the above and liaising with shareholders generally on the topic.

Buyers will though save on stamp duty.

3. One or many PISCES?

The PISCES regulations that came into force on 5 June 2025 do not create a single exchange, but rather a framework within which multiple operators can run their own markets.  The LSE appears to be working in the sandbox and says it will be one of the first operators, but there will likely be others.  Presumably, the LSE will want to build the best and most reputable PISCES platform.  Query then what other platforms will do differently and why they would be used if the LSE version is available.  Perhaps they will be less expensive, although that is not much of a raison d’être.

Too many PISCES platforms are likely to fragment a market in which there are already substantive concerns about whether there will be sufficient interest to build solid order books outside of period trading windows run by a small handful of outlier companies approaching IPO.

Different platforms mean different rules, which make it harder for companies to switch between them.  And – as above – corporate and equity documents will need to be amended, but that exercise may be made more complicated if different platforms are to work in different ways.

Perhaps, at the end of the five-year sandbox in 2030, the number of PISCES platforms will be slimmed down, perhaps to only one.

4. Valuation

Private companies are – famously – exceptionally hard to value well, and valuation is as much an art as it is a science.  UK listed companies have a single class of share, completely vanilla corporate structures and shares are traded year-round by reference to a heavy-duty regime of mandatory disclosure.  Pricing typically takes place by reference to well-established industry norms that track through to accounts that have been produced by an auditor.

In venture capital, valuations are typically set ‘round to round’ by the lead investor and don’t much seek to factor in levels of profitability (or otherwise) or the net asset position but instead look to exotic and somewhat amorphous terms such a ‘target addressable market’ or some multiple of annual recurring revenue based on ‘numbers’ that can be hard to verify.

Secondary trades are typically made at the price of the last funding round or at some discount or uptick thereto kept private between the buyer and seller and the board, who are wanting to avoid unwanted price signals being sent more widely.  Again, seldom is the pricing on those trades determined by direct reference to the current underlying financials of the company.

Query then if an auction or trading window on PISCES will actually work so as to allow for genuine price discovery based on supply and demand.  If the order book is very thin and PISCES allows for companies to set price parameters, then it is unlikely.  Why bother then with PISCES and why not just transact in the usual way off platform?

5. Company X backed by investor Y

The flip side of liquidity for investors is that companies may end up with investors on their cap table who they don’t know and would not have chosen had they the choice.  Those new investors may end up taking over consent and information rights from the seller, and in extremis the company may be in a position of needing to seek advice as to how it can avoid giving otherwise confidential information out to an investor who has backed competitors or who may be a competitor themselves.  (Companies should look there to having carefully-worded language in their shareholders’ agreement as regards information rights etc.)

If existing investors choose to cash out entirely, then where does that leave the company?  In early rounds of funding especially, companies will make a great deal of marketing hay out of saying there are ‘backed by’ a particular well-known investor and this often helps generate momentum amongst other investors when it comes to the next funding round.  Saying that you are backed by investor Y who then jumped out via PISCES doesn’t have as much of a ring to it!

The PISCES regulations require participating companies to disclose data on pricing and volumes of trades prior to the opening of trading windows.  If the markets do take off, we expect that this data will be closely inspected by existing and new investors in a way that is currently not possible with off market secondary sales.

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.

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