LONDON: Britain's aspirations for a revival in the equity capital market are heavily reliant on a secondary share trading platform that is causing friction in the finance sector just months ahead of its launch. The Private Intermittent Securities and Capital Exchange System (PISCES) will allow owners of private companies to sell their shares on regulated exchanges during specific trading periods, essentially enabling a temporary 'going public' process. Ministers and regulators are counting on PISCES to strengthen connections between wealthy investors and private companies and hopefully motivate the latter to seek significant listings that have been absent in London for several years.
However, the idea was becoming difficult to promote in certain areas of the UK's financial sector, even before U.S. President Donald Trump's significant tariffs impacted global trade and capital markets, raising the risk of what billionaire investor Bill Ackman referred to as "a self-inflicted economic nuclear winter." Over a dozen bankers who conversed with Reuters regarding PISCES worry about revenue impacts and eventually being overlooked in a thriving private capital market. However, they also highlighted other possible drawbacks of utilising the platform. These factors comprise insufficient privacy regarding sales results, which might negatively impact future valuations for emerging companies, the threat that a rival or aggressive activist might access the shareholder roster and seek excessive control, and diminished legal safeguards for investors against insider trading.
PISCES platform faces financial sector resistance
Consequently, numerous bankers expressed they were improbable to suggest PISCES to most of their sell-side or buy-side clients, or at most, employ it as a final option, possibly hindering adoption. This absence of excitement may have expensive repercussions for Chancellor Rachel Reeves' effort to revive sluggish economic growth in Britain while global competitors are racing to take London's place as Europe's leading financial centre. Multiple sources reached by Reuters expressed scepticism regarding the actual level of demand for a platform such as PISCES. Owners can establish a price range for the shares they intend to sell, but they might find it harder to hide unsatisfactory pricing compared to having directed a bank to selectively choose investors and sell fully off-market. "Without liquidity, a business finds itself in a risky position because PISCES will always be more public than engaging in a purely bilateral secondary transaction," Rishi Khosla, CEO and co-founder of OakNorth Bank, informed Reuters.
"The main unresolved question is how to inject liquidity into it." The discussion of who stands to benefit the most or suffer from PISCES is prevalent in London's financial communities. Simon Walls, the interim executive director of markets at the Financial Conduct Authority (FCA), mentioned that PISCES could serve as a "stepping stone" toward complete listings. However, some analysts argue that companies that successfully access the market might abandon IPO strategies entirely, resulting in banks missing out on a profitable opportunity. Sources indicated that this fear, along with increasing competition from non-bank lenders such as Apollo (APO.N), BlackRock (BLK.N), Blackstone (BX.N), ARES (ARES.N), and KKR (KKR.N), has contributed to reducing bankers' enthusiasm for PISCES.
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Banks generally impose fees of approximately 5 per cent for linking firms with new investors in private placements or off-market stock transactions. LSEG has not revealed the pricing model for PISCES but will have no control over additional charges imposed by banks, consultants, and service providers assisting companies that utilise the platform. Not everyone thinks that banks will suffer financially from the introduction of PISCES, which the FCA calls the first platform of its type for trading. According to another source, banks that are open to adjusting their equity capital markets and corporate brokerage teams to attract new private company clients might transform PISCES into a lucrative venture.
"Perhaps you're not applying a 5 per cent fee on a transaction that occurs once every two years. However, if auctions occur every six months, you're more inclined to develop a relationship that results in increased lending and additional services," said the individual.
"It's a significant chance to grow a clientele with minimal effort." Other banking sources noted that clients had previously voiced concerns regarding the reduced disclosure requirements for companies trading on PISCES, in contrast to other markets where liquidity was more dependable. Unless the platform has some success stories, few indicated they would be ready to spend time promoting PISCES to hesitant clients, as reliable methods are already established. James Tyler, Counsel at the law firm Peters and Peters, mentioned that it is significant that the typical market abuse and insider trading regulations will not apply to the new PISCES market, pointing out the focus on 'caveat emptor' in the FCA consultation. "Regrettably, the dangers of investor harm and market manipulation on the platform appear significant compared to a narrow business justification," stated Tyler.
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