FCA paves the way for the LSE’s ‘Private Securities Market’

The London Stock Exchange (LSE) has become the first company to be granted approval to operate a “PISCES” platform by the FCA. The LSE’s new platform will be known as the “Private Securities Market” (PSM).

PISCES (Private Intermittent Securities and Capital Exchange System) is a new framework that lets investors trade existing shares in private companies on a regulated platform, providing private companies with access to intermittent liquidity auctions by using the LSE’s public markets technology and infrastructure. 

The aim of PISCES platforms, such as the PSM, is to help early stage, scaling and mature private businesses get better access to funds by bridging the gap between private and public markets.

Shareholders and employees of private companies will gain access to greater liquidity when they want to sell shares in a private company, whilst simultaneously investors will obtain the opportunity to invest in and trade shares in private companies that they might not otherwise have been able to access. 

The PSM will operate through scheduled, intermittent trading windows, giving companies control over how and when their shares are traded. The schedule will be determined by the company, and the auction process will begin when the company submits an Auction Application Form, indicating to investors that the company is ready to trade. Once the form is submitted there is a strict timetable to follow, which includes the publication of relevant core disclosures through a disclosure portal and Q&A function to allow investors to raise queries with the company. Overall, the auction process from submitting the form is intended to take less than 10 business days. 

The LSE has also published draft rules regarding the PSM for feedback, including the Private Securities Market Rules (PSM Rules) which set out how companies can join and how the market will operate.

Notably, the draft rules provide information on what companies are eligible for the PSM.

Eligibility Criteria

Under Rule 2.3 of the draft PSM Rules, in order to be considered eligible for the PSM, a company must be able to demonstrate at least two of the following:

1. it has undertaken a fundraise (debt or equity) of at least £10 million (or equivalent), which included material participation of experienced investors independent of the applicant; 

2. the total assets of the company are at least £20 million (or equivalent) based on its latest audited financial statements; and/or 

3. the annual turnover of the company is at least £10 million (or equivalent), based on its latest audited financial statements. 

The LSE has full discretion on whether or not a company can join the PSM. The LSE will give consideration as to whether the company may be detrimental to the reputation of the LSE or other markets, whether there may increased risk to the LSE’s operator obligations pursuant to PISCES Regulations, whether the company may be better suited to another market or whether the company would be capable of complying with the PSM rules. Companies will have ongoing obligations to the LSE which is covered in Section 5 of the PSM Rules which include ongoing eligibility, cooperation with the LSE and confidentiality.  A company can leave the PSM by informing the LSE and making the necessary disclosure in the disclosure portal with at least 3 months’ notice, or a longer period if the company conducts a final auction before it exits the market. 

The LSE has also released its price list for the PSM, which covers how many auctions a participant can participate in per calendar year and extra costs for additional auctions for any participant in the same calendar year. The standard costs are set out below, (with certain introductory fees being waived for a limited period to encourage take up):    

• Annual Fee – £25,000 (covers two auctions per calendar year)

• Additional auction participation fees – £15,000 (per auction)

Final thoughts

The London Stock Exchange is the first to be granted the PISCES Approval Notice with many more operators thought to be in the pipeline. The introductory waiver fees should encourage private companies to join the PSM and become part of a new secondary market with access to institutional, professional and certified sophisticated investors. The auction periods will provide controlled and intermittent trading events to assess how much liquidity private companies can access on the PSM. Overall, it does appear that the LSE, together with the FCA is focused on driving innovation and access to capital as part of its overall aims of making the UK market more attractive to investors.

This article was co-authored by Alex Stoughton and Vikash Vaitha.