Britain set out draft rules on Wednesday for unlisted companies to sell shares on an exchange, helping to diversify ownership by allowing venture capital to relinquish some of their stakes and build up a better pipeline of listings to compete with New York.
Britain's finance minister Jeremy Hunt unveiled plans for an 'intermittent trading venue' in December 2022 in his 'Edinburgh Reforms' to bolster London's post-Brexit international appeal to investors and companies.
In his budget on Wednesday, Hunt set out for public consultation rules for a Private Intermittent Securities and Capital Exchange System, or Pisces.
Similar precedents have been set in other markets. Rival exchange Nasdaq in New York has long had a private market segment for share auctions, and Guernsey-based International Stock Exchange also operates a private markets segment.
"Investors will gain better access to exciting companies while also benefiting from greater transparency and efficiency than available in private markets," the finance ministry said in a statement.
"This proposal will support the pipeline for future initial public offerings (IPOs) in the UK, by improving the interface between private companies and UK public markets, and complementing the government’s wide ranging and ongoing reforms to boost the UK as a listing destination."
The London Stock Exchange (LSEG.L) plans to launch such a system by year-end, if it gets regulatory approval, saying it would bridge public and private equity markets, help companies scale up and boost listings.
Currently, private companies not ready for a costly public listing and its heavier regulation have limited choices, such as a trade sale, which could see the firm being taken over by a competitor, or a cumbersome block sale.
Pisces will only be for trading existing shares, and not for raising new capital, thereby easing disclosure requirements and costs.
On the LSE, institutional investors from across the world would be able to trade on a certain number of days a year in the private shares, after eligibility checks with a broker, with the transaction settled within two business days.
"The introduction of a venue that provides private companies with choice in how and when they access liquidity, and gives shareholders opportunities to enter and exit investments, could be transformational for UK capital markets," LSEG Chief Executive David Schwimmer said.
Globacap, a capital markets tech firm, said it is likely to apply for authorisation to operate a 'Pisces' when the rules are finalised.
"Even with the introduction of Pisces, the UK is still playing catch-up," Globacap co-founder and CEO Myles Milston said. "But, if it’s deployed in the right way it could be a real catalyst for the UK’s private markets ecosystem.”
Pisces dovetails with the Mansion House Compact, in which 10 pension funds have committed to investing up to 5% of their cash in unlisted growth companies.
