- Private firms to raise capital at auction while investors can trade shares
- But City watchdog says retail investors are excluded from the plans for now
Shares in private companies could begin trading on a new UK platform later this year under plans to boost investment in smaller companies and investor access to the lucrative growth market.
Many firms are now staying private for longer, which has contributed to shrinking UK public markets but also resulted in bumper returns for the few investors with access to successful companies.
The Private Intermittent Securities and Capital Exchange System – or Pisces – will allow private firms to periodically raise capital via auction and access a wider pool of investors, while providing existing shareholders the opportunity to sell their shares.
First announced in the Chancellor’s Mansion House speech last year, Pisces is intended to help businesses grow without shouldering the costs and volatility associated with listing on London’s public markets.
Announcing further details of its plans on Tuesday, the Financial Conduct Authority’s executive director of markets Simon Walls said Pisces forms part of efforts ‘to boost growth and competitiveness’ in the UK market.
The FCA added: ‘There is demand for investors to trade private company shares easily and efficiently in an organised marketplace.
‘Pisces meets this demand by allowing secondary trading of these shares. Companies can set the floor and ceiling of share prices, and have a say over who can buy their shares.’
Pisces forms part of plans to boost growth and the UK’s capital markets
However, retail investors will be excluded from buying shares on the Pisces platform, with access restricted to institutional investors, high-net-worth individuals, ‘sophisticated’ investors and employees of participating companies.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said there is ‘potential’ for Pisces to support greater retail access ‘in the longer term’, but this could take ‘five years or more’.
‘It could provide an opportunity to level the playing field between retail investors and institutional investors,’ she added.
‘Knock-on impact’ for shrinking AIM market?
Takeovers and delistings have been a common feature of the UK market in recent years, but the impact has been most severe on the junior market.
London’s AIM market of smaller listed companies is set to shrink by a fifth this year alone, with 61 companies, worth a combined £12.3billion, announcing plans to delist.
Companies are also not being replaced, with just 18 new AIM companies listing last year compared to 89 exits.
HL’s Streeter said: ‘Pices could help create a more free-flowing pipeline for IPOs in the City and it could also help with price discovery for valuations.
‘The City is struggling to attract and retain listed companies, so the hope will be that this will offer greater support for home-grown start-ups and scale ups.’
But managing director of wealth manager Evelyn Partners Jason Hollands said Pices ‘may well have a knock-on impact for AIM’.
He added: ‘Some private businesses who might have previously contemplated joining AIM as the next step, may conclude this is a much better option for the next stage in their evolution.
‘It is no secret that AIM has been struggling in recent years, with a dearth of new admissions, private equity buyouts, and other companies moving to overseas exchanges or the main market.
‘The Chancellor’s decision in her Budget last October to halve the amount of inheritance tax relief of AIM companies will provide a further headwind for the market as investors seeking to mitigate IHT by investing in AIM companies has previously proven a meaningful group of owners for a market of relative illiquid companies.
‘Some fund managers expect to see a sizeable exodus of companies from AIM over the next couple of years as a result.’
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