What is happening?
The UK government has taken a key step in launching PISCES (Private Intermittent Securities and Capital Exchange System) - a new marketplace where private company shares can be traded periodically. Along with this, they have announced important tax benefits for employee share options.
15 May 2025 saw publication of a statutory instrument which is necessary to implement the so-called regulatory sandbox, carving out the regulatory space for PISCES to operate for an initial period of up to five years.
The statutory instrument is due to come into force on 5 June 2025 and the Financial Conduct Authority (FCA) is expected to publish its final rules underpinning PISCES shortly after that. This means that PISCES operators can launch their PISCES platforms in the coming months with shares likely to be traded in the Autumn.
The statutory instrument makes clear who will be eligible to participate in PISCES and sets out the basis of liability for disclosed information.
Who can invest on PISCES?
The position remains as expected, that most retail investors are prohibited from trading on a PISCES. Professional clients (as defined in UK MiFIR) and sophisticated investors and high net-worth investors (based upon the Financial Promotion Order) will be eligible to buy shares on PISCES, as well as trustees of employee share schemes and share incentive plans. Employees or officers of participating companies (or other companies within the participating company's group), and individuals providing consultancy or managerial services to those companies, will also be eligible to buy shares.
Disclosure regime
The FCA will mandate core disclosures which must be included in rules issued by a PISCES operator. Each operator will also have latitude to include additional disclosure requirements. The FCA has already consulted on the disclosure regime and provided an update on 10 April 2025 to confirm its overall approach and give some indications on specific matters.
The regime in the statutory instrument for liability for disclosures made by a company in PISCES remains as expected, with a stricter negligence liability standard applying to more certain information (for example, past financial information), while applying a more lenient knowledge/ recklessness standard to forward looking information and information not required as a core disclosure.
Purpose of PISCES
PISCES is intended to act as a bridge between public and private markets. PISCES will facilitate the sale of existing shares in unquoted companies (UK and foreign) by shareholders through auctions on an intermittent basis. It will be a secondary market, so available only for shares which have previously been issued. A company will not be permitted to buy or sell its own shares on PISCES, preventing share buybacks and sale of treasury shares. PISCES will not facilitate the offer or sale of new shares in PISCES companies and therefore will not be a means of raising new capital for unquoted companies.
Employee options
Many employee share options in private companies are structured as 'exit-only' arrangements, meaning they can typically only be exercised during specific corporate events such as a company sale or IPO. This structure aligns exercise with liquidity events when shareholders can realise value from their shares. However, given the recent decline in IPOs and traditional exit opportunities, there is increased demand for alternative liquidity routes such as private secondary sales. This liquidity constraint is a significant limitation that the new PISCES framework aims to address.
In a significant development for private company employee share schemes, the UK government has announced it will introduce legislation allowing options granted under existing tax-favoured enterprise management incentive (EMI) and company share option plan (CSOP) plans to be amended to include PISCES trading events as valid exercise triggers without losing their valuable tax benefits. Without such a change in law, any amendment (or use of discretionary powers) to enable PISCES-related exercise triggers could have resulted in the loss of tax-favoured treatment and deterred option holders from participating in PISCES – we welcome the removal of this potential barrier to PISCES take up.
The key benefits for companies and employees:
- The terms of existing EMI and CSOP options can be amended to allow exercise on PISCES trading events.
- The amended EMI and CSOP options will retain their valuable tax advantages – the amendment will not result in a loss of beneficial tax treatment.
- The legislative changes will apply retrospectively, benefiting the first PISCES trading events in autumn 2025.
-
In the interim period before the new legislation comes into force, HMRC will use its collection and management powers to not collect tax on EMI or CSOP option exercises, ensuring immediate benefit from the intended changes.
What does this mean for your business?
If your company has EMI or CSOP plans in place, PISCES creates new opportunities:
- Your employees can more easily realise value from their share options and the latest announcement removes the tax disadvantage in doing so.
- You can offer additional liquidity events to attract and retain talent.
The government has indicated companies should await further guidance before implementing any amendments to existing schemes. We will be keeping an eye out for the government's detailed guidance, expected by the end of July 2025, which should provide further details and clarifications - including on the amendment process. We would then recommend reviewing current EMI and CSOP plans and option documentation for potential amendments required to existing exercise triggers.
Other PISCES benefits worth noting are:
- exemption from Stamp Duty and Stamp Duty Reserve Tax on PISCES transactions
- more flexible trading arrangements compared to traditional private share sales and secondary sales
- reduced disclosure requirements compared to public markets
Our specialist teams are monitoring these developments closely and can help you understand how these changes could benefit your company and employees. Please contact us to discuss any queries.
