What ‘Pisces’ means for advisers and investors

Investors already have access to thousands of companies around the world. The choice can be overwhelming so do we really need the launch of yet another stock market? The answer might be ‘yes’ if it offers something different from what’s already available and a new market called ‘Pisces’ certainly ticks the right boxes.

Pisces is the name for the UK Government’s new vision for privately-owned companies to facilitate dealing in their shares. While it won’t be open to the general public, there are positives from its creation and longer-term it could become the breeding ground for future public stock listings.

Why is Pisces launching?

Pisces is set to be legislated by May 2025, although it’s uncertain when the official launch will happen. Once operational, it could help private companies become familiar with the idea of slices of their business owned by other people.

It might function as a stepping stone towards a public stock listing, getting them used to regular financial reporting, transparency as a business, and understanding that directors run a company for the best interests of shareholders, not themselves.

It could also encourage their staff to develop a saving and investing habit. One of the biggest obstacles for private company share ownership is that staff can be put off by the general inability to sell those shares at regular intervals.

Certain private companies do not offer the ability for staff to trade shares, meaning they are stuck owning the equity until the business either lists on a public market or there is an internal event where they can sell down.

In theory, Pisces could improve liquidity by facilitating the trading of private company shares at more regular intervals. However, it will only exist for intermittent trading, not the continuous trading during market hours that you get with publicly-listed stocks. Such restrictions would give a company control over when changes in share ownership can happen.

Disclosure requirements will be different from public markets in that investors taking parting in a Pisces trading event will have company-specific information, but details won’t be public. That’s differs from previous proposals under the former Conservative Government.

Is Pisces a risk to AIM?

Pisces is not replacing an established stock market like AIM as it will not support capital raising and it won’t be open to the general public. It is purely a secondary trading market and there will be restrictions on who can buy and sell.

Apart from employees of the private company, only institutional investors, high net worth individuals or those deemed to be ‘sophisticated’ investors will be able to buy and sell via Pisces. Share buybacks will not be possible, at least in the initial stages of the market’s life.

These factors are important as they mean Pisces and AIM will not be direct rivals. The launch of Pisces does not sound the death knell for AIM. If anything, it could shine on a spotlight on AIM’s advantages in letting companies access capital markets for growth funding and the ability to conduct share buybacks, the latter treasured by certain investors in the current environment. AIM is a stepping stone for London’s Main Market – and now that journey could start earlier, with Pisces the stepping stone for AIM.

The proposal to make Pisces share transactions exempt from stamp duty and stamp duty reserve tax puts it in line with similar exemptions for AIM and the Aquis growth market. However, it’s unfortunate that the Government hasn’t extended this status to all UK shares.

The Government is on a mission not only to encourage more people to invest in UK shares but also attract more investment from overseas. Removing stamp duty on all UK shares would be a major step forward as the current rules make the UK less competitive than other locations such as the US and continental European markets. Stamp duty is a cost for investors and can add up for those who regularly trade.

Pisces is not going to change the world, but it should be a welcome addition to the UK’s investment ecosystem.

Past performance is not a guide to future performance and some investments need to be held for the long term.