It is not exactly the snappiest name. The Private Intermittent Securities and Capital Exchange System – which, handily, can at least be shortened to Pisces – will create a new, lightly regulated platform for trading equities in the City. A private business will be allowed to sell some shares on one of the official platforms as and when it chooses, and investors can then trade them on if they wish to. In effect, it will allow private companies to use the plumbing of the stock market without the hassle and expense of a full-scale listing. The Financial Conduct Authority has finalised its rules for the market and the aim is for it to be up and running by the end of the year.
It will only be open to sophisticated, high-net-worth individuals, along with institutional investors, and is at least a sign that something is being done to address the exodus of companies from the stock market. Only this month, Wise, easily one of the most consistently successful technology companies in Europe, announced it was moving its primary listing from London to New York. That came only a few weeks after the Chinese fast-fashion giant Shein, a controversial but huge business, decided to list in Hong Kong instead of London. Overall, the number of companies listed in London has fallen from 2,400 a decade ago to just 1,600 now and, even worse, there are virtually no new listings to replace them, with only 18 initial public offerings (IPOs) last year, raising a mere £770 million. On current trends, the London market will have ceased to exist by the 2040s. Pisces is an attempt to reverse that.
There is a case to be made for the new market. It will sit just above the crowdfunding platforms, but below the junior Aim market. The aim is to create a more lightly regulated regime that will allow growing businesses to take their first steps towards a listing and create a conveyor belt of new businesses heading for the main market to replace those that have left.
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Three key flaws with Pisces
There are three big problems, however. First, although the main market without question has too many rules – a major reason so many have quit – Pisces may well have too few. There won’t be any requirement for major shareholders to announce further dealings. Companies traded on Pisces won’t have to apply any specific accounting standards.
Their accounts will not even have to be audited (although they will at least have to say whether they have been). To describe it as a Wild West market would be unfair to 19th-century American frontier towns. It is hard to imagine that even well-informed private investors – MoneyWeek readers, for example – will be tempted to put money into the shares traded on the new exchange. Unless they know the directors personally, they literally won’t have a clue what is going on at the business. As for institutional investors, it will be very hard for pension-fund trustees to sanction that kind of risk-taking when they can invest in Unilever and Vodafone instead.
Second, where are the tax incentives? For the new market to take off among private investors, it would help if there were some significant tax savings to be made. After all, money is being put into riskier, smaller companies, but with the potential for rapid growth. And, of course, inheritance-tax relief in Aim shares is being scaled back following the last Budget, so there would have been a strong argument for offering something to Pisces investors instead. But no. Anyone buying shares on the platform will owe the same taxes as they will on any other investment. It hardly seems worth it, given it will inevitably be far less safe.
Finally, it does not address the real problem. With the enterprise investment scheme, and venture-capital trusts, the UK has actually been pretty good at putting money into small, emerging companies. It is persuading them to move onto the main market instead of selling out as soon as a generous offer arrives from one of the tech giants, or listing their equity in the US where it will be more generously valued, that is the problem. Creating a new, lightly regulated market for very small trades doesn’t do anything to address that.
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