In an effort to encourage investment in private companies, and ultimately to tempt large start-ups and scale-ups to list in London, the Financial Conduct Authority has approved the ‘Pisces’ trading system to be run by the London Stock Exchange.
Pisces, the Private Intermittent Securities and Capital Exchange System, is a step in the right direction. The innovative approach has the potential to broaden market access for a swathe of investors, and with some tweaking could be the foundation of a longer-term turnaround in London’s equity markets.
However, while the new platform represents exactly the kind of fresh-thinking our capital markets need, the fact that most retail investors are being excluded from such a significant innovation for our capital markets means that the impact will not be as strong as hoped.
Only institutional investors, high-net-worth individuals, and employees of participating companies will be able to buy and sell shares on Pisces.
Protection without prohibition
These restrictions are part of an effort from the FCA to protect investors from making decisions they do not understand, and of course nobody argues retail investors should not be protected. Private markets, even with the introduction of Pisces, can be illiquid, with assets opaquely priced.
Concerns about private equity firms struggling to exit investments are legitimate. Without protection there would be a danger that private equity firms would try to offload toxic assets on to retail investors. However, blanket prohibition is not the only solution, it is simply the easiest for regulators.
More sophisticated approaches exist. Market makers could be incentivised to provide liquidity, reducing manipulation risks and ensuring fair pricing. Basic listing requirements and enhanced disclosure could offer transparency without excessive burdens on growing companies.
The current approach assumes retail investors cannot make informed decisions when given proper information, contradicting the government’s goal of building financial literacy.
Broader reform agenda
Pisces represents one element of comprehensive capital markets modernisation. The government has made encouraging noises about supporting financial services, but bolder action is needed — that is why at IG we have launched our “Save our stock market” (SOS) campaign.
Radical Isa reform would give retail investors firepower to meaningfully participate in equity markets. Ending stamp duty on share purchases would eliminate a uniquely British investment tax. More favourable capital gains treatment for long-term holdings would encourage patient capital formation.
These reforms should form a coherent strategy to rebuild London’s global financial centre status.
Learning from across the pond
The chancellor’s efforts to reform the markets could not be more timely. We are seeing innovation globally to broaden public access to markets and stimulate investor inflows into new asset classes.
In the US, Donald Trump’s administration is exploring ways to open private market investments to 401k participants, recognising that democratising access to growth assets benefits both investors and the broader economy. Meanwhile, the UK creates additional barriers by excluding retail investors from such an innovative new trading platform, just as its global peers are tearing them down.
Consider the absurdity: a 20-year-old mechanic in Nebraska could soon be able to buy shares in companies like Revolut through their 401k, while a qualified financial professional in London could not. This is not just unfair, it is economically counter-productive.
When companies like Bitpanda publicly declare they will avoid London listings and Wall Street ‘laughs at the idea’ of floating here, we should recognise that exclusionary policies are damaging our market’s reputation and competitiveness.
This policy divergence threatens to accelerate the flight of listings and liquidity from London to markets that welcome rather than restrict retail participation.
How to move forward
Current policies are not delivering better outcomes. Despite, or due to, extensive restrictions on retail market access, we see inadequate pension provision, excess cash in low-yielding accounts, and a domestic equity market losing international relevance.
Recent moves to reverse similar restrictions — such as allowing crypto exchange traded notes — suggest regulators recognise that blanket prohibitions often create more problems than they solve.
Pisces offers a genuine opportunity to revitalise UK equity markets and restore London’s competitive edge. However, this opportunity will be squandered if we persist with policies that exclude the very people who should benefit most from a thriving domestic capital market.
Successful Pisces implementation should phase in retail access alongside appropriate safeguards. Initial restrictions could gradually relax as market liquidity develops and investor education expands. A balance between risk and reward should be struck through proportionate protection measures for investors.
The platform’s success should not be measured solely by institutional participation but by its ability to create a more inclusive and dynamic UK equity market.
The choice is clear: embrace innovation while protecting investors through smart regulation, or continue relegating UK markets to irrelevance while international competitors capture the growth companies and capital flows of the future.
Michael Healy is UK managing director of trading platform IG