FCA consults on arrangements for PISCES sandbox

Specifically, the Paper details the FCA’s proposals regarding requirements for PISCES operators relating to company disclosure, the organisation and administration of PISCES trading events, and market manipulation and oversight. The Paper also summarises the FCA’s approach to operating the PISCES sandbox, promotion and distribution requirements for intermediaries, and the application of the FCA’s handbook and guidance. As well as an explanation of the FCA’s position relating to each of these items, the Paper includes a draft 72-page PISCES sourcebook governing the sandbox. In formulating its proposals, the FCA has applied a “private-plus” approach that seeks to build on existing private market practices instead of adapting public market standards for use in private markets. The FCA also notes that its proposals are designed for a private “buyer-beware” market where investors are institutional, professional, and a limited subset of retail investors, that can take responsibility for their investment decisions.

In this bulletin, we summarise the disclosure, trading event and oversight requirements proposed in the Paper.

Proposed PISCES disclosure requirements

The FCA views centralised disclosure arrangements overseen by a PISCES operator, through which disclosures can be accessed by investors equally and securely, and which are subject to minimum requirements, as being central to the efficient and effective functioning of PISCES markets. Accordingly, the FCA proposes that each PISCES operator will be required to put in place disclosure rules and arrangements. During the application process to certify PISCES operators, the FCA will assess the operator’s proposed disclosure arrangements against an overarching requirement that the arrangements are appropriate for the efficient and effective functioning of the operator’s PISCES market.

Core disclosure information

The FCA proposes that each PISCES operator must require private companies listing their shares on the operator’s PISCES platform to disclose certain core disclosure information. Core disclosure information will not be comparable to the level of information available about public companies. Instead, the disclosures aim to solicit standardised information that a purchaser would typically request in a private market transaction without overly burdening the private companies listing their shares. 

The FCA proposes that core disclosure information include:

• financial statements and any related audit reports;
• key material risk factors specific to the PISCES company and its shares;
• an overview of the corporate and organisational structure and description of activities and products; 
• an overview of management structure and details of directors and senior management; 
• information about current, pending or likely litigation or investigations (if material to the business or profitability of the company);
• details of contracts or agreements (if material to the business or profitability of the company);
• information on significant changes, including financial position, significant acquisitions/disposals and significant related party transactions;
• summary of provisions in the articles of association and shareholder agreements;
• summary of employee share schemes, including arrangements for directors and senior management; 
• details regarding major shareholders, including persons who (i) hold (directly or indirectly) over 10% of shares or voting rights in the company; (ii) hold (directly or indirectly) the right to appoint a majority of the board; (iii) exercise, or have the right to exercise, significant influence or control over the company; or (iv) trustees or members of firms that are not legal persons who meet any of conditions (i) to (iii) or would do so if they were persons and have the right to exercise, or actually exercise, significant control over the activities of that trust or firm; 
• information about any sustainability characteristics that are material to the company’s business or profitability, including information about material climate-related risks and opportunities and a summary of key information in any published climate-related transition plan; and 
• forecasts of company financial information for at least the next 12 months and details of any business strategy or objectives of the company for at least the next 12 months. 

Core disclosure information would also include information on share capital and rights and restrictions attached to company shares, details of directors’ transactions and trading intentions for the particular PISCES trading event, information on the date, issue price and amount raised in previous share capital raises, details of the traded price and volume on the last PISCES trading event, and details of any future trading events. If a company applies price parameters to its PISCES trading event, it would also need to disclose details of the parameters’ nature and basis, reasons for any changes to the price parameters applied in any previous PISCES trading event, and whether the parameters were prepared by the company or an independent third party which would need to be named.

Arrangements for disclosure of additional information

The FCA acknowledges that its proposed overarching disclosure requirement that disclosure arrangements be appropriate for the efficient and effective functioning of the operator’s PISCES market may not be met solely by the provision of core disclosure information. Where this is the case, the FCA proposes that PISCES operators must prescribe arrangements for the disclosure of additional information. PISCES operators would have flexibility in determining such arrangements as long as the overarching disclosure requirement is met by the combination of the core disclosure information and such additional information. 

The FCA proposes that additional arrangements include:

• Disclosure of other information/categories of information not listed in the core disclosure information;
• Disclosure, in general terms, of additional information that the company’s board of directors considers relevant for investors to trade in the company’s shares (a “sweeper-model”);
• Arrangements, overseen by the PISCES operator, for the company to provide information in response to specific requests by investors, ensuring that any such information would be shared with all possible investors (an “ask-model”); and/or
• Any other arrangement that a PISCES operator considers appropriate for the efficient and effective functioning of its PISCES market.

The Paper notes that the FCA considered proposing a mandatory sweeper model under which it would require companies to disclose any information known to the board of the company which the company considers relevant for investors in making their decision to trade in admitted PISCES shares. While the FCA declined to propose this as its preferred option, the Paper requests further feedback on such a mandatory sweeper model. 

Other minimum disclosure arrangements

Alongside its core and additional disclosure requirements, the FCA proposes certain minimum disclosure arrangements in the Paper: 

• Omissions of core disclosure information – The proposed rules require PISCES operators to allow companies to withhold the provision of core disclosure information provided that a legitimate explanation is given as to why the information cannot be provided, and companies include a summary of this explanation in their disclosure. Examples of legitimate reasons to omit core disclosure information include that the company does not have access to the information or disclosure of the information would be likely to prejudice the legitimate interests of the company.
• Corrections and amendments – The FCA proposes requiring PISCES operators to institute rules mandating company disclosure of updated or amended information as soon as possible if there are material mistakes or inaccuracies in existing disclosure or material new developments take place during a PISCES trading event. 
• Disclosure availability – Under the proposal, disclosed information would not be made public but would be made available to investors participating in a PISCES trading event concurrently and would remain available until the end of the PISCES trading event. PISCES operators would have discretion to propose specific timelines for the disclosure of information subject to the requirement that such information is disseminated sufficiently in advance of trading to permit investors to analyse and understand the information. The FCA envisages that these disclosures would be made available in a manner similar to the disclosure of information in a data room for a private M&A transaction.
• Presentation of disclosures – The FCA proposes that PISCES operators maintain rules to ensure company disclosures are made available in an easily analysable, concise and comprehensible form with regard to the type and nature of participating investors. 
• Post-trade disclosures – PISCES operators would have to mandate that companies disclose transactions by directors during the PISCES trading event and major shareholders after the trading event within a reasonable time after a trading event. 
• Disclosure liability regime – In respect of disclosure liability, the new PISCES disclosure liability regime created by HM Treasury will apply a negligence standard to core disclosure information. However, companies will not be required to compensate investors where their officers reasonably believed the disclosures to be true and not misleading. In respect of certain forward-looking statements provided either through core disclosure information (for example, financial forecasts and business strategy/objective disclosure) or through additional disclosures, a higher liability standard of recklessness/dishonesty will be imposed to encourage companies to provide additional information to their core disclosure information.

Operator oversight

The FCA proposes to require PISCES operators to monitor the compliance of companies with the operator’s disclosure rules and arrangements, but not to require them to approve companies’ actual disclosures or assess the clarity, reasonableness or accuracy of disclosures before they are disclosed. However, the Paper notes that the FCA considers it reasonable for operators to check the general completeness of disclosures before they are provided to investors, such as by ensuring each section of the core disclosure information has been disclosed and any omissions have been explained. The FCA expects PISCES operators to take a proportionate and risk-based approach to monitoring compliance and to alert the FCA should they know or suspect (or have reasonable grounds to know or suspect) that disclosures by a company would constitute a misleading statement.

Managing trading events

The Paper also describes the FCA’s proposed requirements for PISCES operators organising and running PISCES trading events, which seek to balance the needs of private companies for a high degree of control over trading events with the importance of maintaining the integrity and orderly functioning of PISCES markets. The proposals focus on conditions for restrictions on trading prices and trading events, as well as requirements for information distribution. 

• Conditions for price parameters – The draft sandbox regulations permit operators to allow companies on their platforms to set a minimum or maximum price at which its shares can be bought or sold (for example, price parameters), with a view to the company being able to protect and have greater control over its valuation. To the extent any such parameters are set, the FCA proposes to require their disclosure as part of the company's core disclosure information, as discussed above.
• Conditions for permissioned trading events – The draft regulations also enable operators to allow companies to impose restrictions on who can buy their shares during PISCES trading events; such events being “permissioned trading events.” Under the FCA’s proposals, operators may only permit permissioned trading events if:
  • restricting access promotes or protects the legitimate commercial interests of the company. While the FCA declines to specify what a legitimate commercial interest would be, it notes that examples may include prohibiting participation by competitors, restricting trade execution sizes, prohibiting participation by investors from restricted jurisdictions or identifying a list of investors who can participate, such as employees; 
  • no new restrictions are imposed on investors selling their shares during a PISCES trading event (except in the case of employees subject to existing contractual obligations limited share sales);
  • the restrictions are published, transparent, non-discriminatory and based on objective criteria; and
  • arrangements are in place to ensure that all PISCES investors who request access to the event are informed of the nature of the restrictions on investor access in a timely manner. 
• Event notifications – For each PISCES trading event, the FCA proposes that PISCES operators require the public disclosure of the timing and length of the event, the time period for the availability of PISCES disclosure information, the subject shares, participant restrictions, and whether or not the event is permissioned (for example, yes or no). It also encourages operators to consider requiring the public disclosure of a high-level summary of restrictions.
• Pre and post trade transparency data – Because trading on PISCES platforms will be multilateral, the FCA proposes that PISCES operators make available the current bid and offer prices, and the depth of trading interests at those prices, as well as the instrument identification, price, volume and time of the transactions executed on the PISCES platform, as close to real-time as is technically possible, on a continuous basis during PISCES trading events. The information must be calibrated for the particular PISCES platform and the FCA has committed to working closely with operators to ensure their transparency obligations are met. The FCA has also proposed record-keeping requirements for the data.

The Paper also discusses complaints and disciplinary procedures for operators, as well as a form of PISCES market risk warning to be included in any disclosure information disseminated on their platforms.

Oversight and market manipulation

HM Treasury has confirmed that the UK Market Abuse Regulation ("UK MAR") will not apply to securities traded on a PISCES platform (subject to limited exceptions) and a PISCES platform operated under the PISCES sandbox regulations will not be deemed to be a trading venue as defined under the UK Markets in Financial Instruments Directive. In addition, the PISCES framework will not include any equivalent UK MAR-style civil market abuse regime, governed by the FCA. 

In light of the above, the FCA proposes to require PISCES operators to institute rules and arrangements to mitigate the risk of manipulative trading practices taking place on their PISCES markets. The PISCES operators themselves will be responsible for monitoring and enforcing the rules, as well as taking disciplinary actions where required (with such actions able to include the cancellation of a PISCES company's admission to the PISCES operator's platform). When applying to become a PISCES operator, a firm will be required to provide a detailed assessment of their proposed rules and arrangements, showing how they will enable the potential operator to detect and prevent manipulative trading practices.

It is worth noting that governance in respect of PISCES will not be placed solely in the hands of the PISCES operators, and the FCA will continue to supervise the functioning of the PISCES operators' rules and arrangements to ensure they maintain fair and orderly trading, protect investors, and preserve market integrity. Further, sections 89 and 90 of the Financial Services Act 2012, covering misleading statements or impressions in relation to securities, will apply to PISCES.

However, the Paper warns that as neither criminal or civil insider dealing regimes will apply to trading on PISCES, persons will not be prohibited from sharing and trading on confidential information during trading events, which could affect the fairness of a PISCES market. The FCA intends to monitor this during the PISCES sandbox period.

Next steps

The FCA has requested feedback on the Paper by 17 February 2025 and expects to publish further information in early 2025 relating to engagement opportunities for firms wishing to apply to become a PISCES operator. The FCA will release its final rules once HM Treasury has laid its final statutory instrument before Parliament (which will establish the PISCES framework on a legal footing), which is expected to take place by May 2025.

Authored by Daniel Simons, Alex Parkhouse, Danette Antao and Scott Prior.