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The owners of private companies will be able to sell shares to financial institutions and other professional investors from next year without complying with market abuse and other detailed disclosure regulations, the UK watchdog has said.
The Financial Conduct Authority presented plans on Tuesday to introduce a lighter regulatory regime for a new type of trading venue that will allow investors in private businesses to sell shares on a limited number of days.
The plan to create a crossover between private and public markets is part of the UK’s attempts to shore up its stock markets, which have suffered a sharp increase in investment outflows and a succession of companies moving their listings out of London.
The final rules for the Private Intermittent Securities and Capital Exchange System (Pisces) will be published by next summer, the FCA said, adding that it would initially operate under its experimental “sandbox” that allows rules to constantly be adjusted.
The system, which would allow the London Stock Exchange and others to apply for permission to run Pisces trading venues, is designed to boost the pipeline of London initial public offerings by encouraging companies to stay in the UK rather than listing overseas.
Last week, equipment rental company Ashtead became the latest name to propose moving its primary listing from London to New York, dealing a further blow to the UK market.
Plans to allow private companies to sporadically sell their shares come as many businesses are increasingly shunning the public markets and staying private for longer, enticed by higher valuations and less onerous regulations.
Globacap, which plans to launch a private share trading venue, said earlier this year that the new regime could encourage some public companies to ditch their listings.
Currently, private companies seeking to sell stock typically find buyers themselves or use crowdfunding platforms. Proponents of the Pisces scheme hope it will connect multiple buyers with companies more easily.
The FCA said private companies would only be able to sell shares held by existing owners, including employees, and not raise new capital. Retail investors will not be allowed to buy shares, which will only be available to institutions and other investors considered sophisticated.
“Investors must understand the higher risks compared to the current protections on public markets,” the regulator said.
Simon Walls, the FCA’s interim executive director of markets, said that as more companies were unlisted “there is demand from investors for an organised marketplace on which to buy and sell stakes in growing private companies, with all the potential returns and risk that entails”.
“We want to build on and enhance private market practices and risk tolerances rather than using public market standards as a starting point for designing the regulatory framework,” said Walls. “This entails some bold choices, for example in not requiring issuers to disclose inside information.”
The idea for a so-called intermittent trading venue was first set out by former chancellor Jeremy Hunt in 2022, as part of a package of measures aiming to boost the UK’s equity markets.
Policymakers have also this year reformed rules for companies looking to list in London, and changed the way that asset managers pay for research, as part of their attempts to re-energise the UK’s capital markets.
A total of 88 companies have delisted or transferred their primary listing from London’s main market this year with only 18 taking their place, according to the London Stock Exchange Group. This marks the biggest outflow of companies from the main market since 2009, while the number of new listings is also on course to be the lowest in 15 years.
In the US, the Nasdaq Private Market has allowed the trading of private company shares since 2013, while in the UK crowdfunding platforms such as Crowdcube and Seedrs enable secondary share sales along with others such as broker Winterflood Securities, with private company platform JP Jenkins.