On 10 June 2025, the Financial Conduct Authority (FCA) published its final rules for the new Private Intermittent Securities and Capital Exchange System (PISCES) sandbox under Policy Statement 25/6 (PS 25/6). Developed pursuant to the Financial Services and Markets Act 2023 and the PISCES Regulations 2025, PISCES introduces a bespoke, regulated secondary market for the intermittent trading of shares in private companies.

This initiative marks a significant innovation in UK capital markets, aimed at improving liquidity for venture-backed and growth-stage private companies while preserving core investor protections. It has meaningful implications for venture capital firms, company founders, and employees holding equity through EMI and CSOP schemes, particularly in terms of share realisation opportunities and revised HMRC guidance on tax treatment.

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Legal and Regulatory Background

The PISCES sandbox was formally established through the Financial Services and Markets Act 2023 (Private Intermittent Securities and Capital Exchange System Sandbox) Regulations 2025, which came into force on 5 June 2025. This statutory framework empowered the FCA to implement a tailored regime to enable regulated intermittent trading windows for unlisted company shares, outside the constraints of continuous disclosure regimes that characterise public capital markets.

The FCA initially consulted on the sandbox in CP 24/29 (December 2024) and refined its proposals in an April 2025 interim update. The final position in PS 25/6 confirms a supportive but tightly defined framework balancing market innovation with proportional oversight and investor protections.

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Legal Analysis and Implications

1. A New Liquidity Channel for Private Markets

PISCES represents a transformative development in UK financial markets infrastructure by offering private companies, particularly venture-backed scaleups, a means to provide shareholders, employees and directors with liquidity without undertaking a full IPO or trade sale.

This will be of acute interest to:

• Founders and early-stage investors seeking partial exits or liquidity inflection points.
• Venture capital funds aiming to recycle capital and demonstrate performance.
• Private equity and secondary market participants seeking to trade stakes in late-stage private companies.
• Employees, directors, officers and those providing consulting and managerial services, trustees of employee share plans and share incentive plans of the private company whose shares are being transacted on PISCES.

The model mimics auction-based trading windows and price discovery mechanisms without the burdens of continuous market disclosure, potentially increasing participation from institutional investors in the private asset space.

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2. Disclosure Framework and Operator Flexibility

The FCA has confirmed that PISCES operators must establish robust yet flexible disclosure regimes. Core disclosures are mandated, but operators may adopt additional frameworks (e.g. sweeper models), provided they justify their approach in sandbox applications. This allows platforms to tailor transparency levels to suit their issuer and investor base, creating space for innovation.

Importantly, the FCA has walked back its initial proposal to treat financial forecasts and strategic objectives as “forward-looking information” subject to higher liability standards, reducing litigation risk for companies and directors.

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3. Impact on employee share incentives

As PISCES allows trading in existing shares on an intermittent basis, it will provide liquidity in the shares of the company which is welcome news for employers and directors of the company who hold shares or options over shares (especially, options under tax advantaged schemes, namely, EMI Options and CSOP Options).

A significant number of UK companies grant employee incentive equity options in the form of ‘exit only’ options i.e. the benefits of these options can be realised on a liquidity event (when all other shareholders also realise the benefits of their investments) such as a sale or IPO of the company. The trading on the shares on PISCES will be a ‘secondary market’ which will allow employees and directors to realise some or all of the benefits of share incentives granted to them prior to a full blown ‘exit’.

To facilitate the realisation of benefits under tax advantaged options i.e. EMI Options and CSOP Options, the government has announced that legislation will be introduced to allow existing EMI Options and CSOP Options to be amended to include PISCES trading events as valid exercise triggers without losing their valuable tax benefits.   These legislative changes will apply retrospectively from the first PISCES trading event later this year.

It is worth mentioning here that at the time of the 2025 Spring Statement, HMRC had published a technical note on the tax implications for companies and employees when its shares are traded on PISCES.

In brief, the key points are:

• HMRC considers ‘employment related securities’ (i.e. shares and securities acquired by reason of employment) (ERS) to be ‘readily convertible assets’ (RCAs), and therefore any employment taxation will be collected under PAYE and liable to national insurance contributions liabilities, if at the time of acquisition of the ERS, arrangements exist for the ERS to be traded on PISCES.
• ERS acquired in anticipation of the company being admitted to PISCES (even if admission is not guaranteed) will also be viewed as RCAs, because of the understanding at the relevant time that trading arrangements are likely to come into existence afterwards.
• It is acceptable for a PISCES trading window to be a specified event to allow option holders to exercise their EMI and/or CSOP options provided that it is clear in the option agreement at the time the option was granted that a PISCES trading window is a specified event for the exercise of the option.
• From a valuation perspective, normal principles of share valuation will apply and HMRC would not seek to disturb the arm’s length price agreed between a buyer and seller and that employees should be able to rely on the transaction price; however, in the case of transactions between connected parties, HMRC may review the transaction to determine the market value.
• HMRC has confirmed that there will be no advance assurance mechanism to agree market values for PISCES events.
• PISCES transactions will be exempt from stamp duty and stamp duty reserve tax, as announced in the Spring budget.

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4. Operational Safeguards and Market Oversight

Operators are required to prevent market manipulation and oversee trading integrity. However, PISCES does not introduce insider dealing prohibitions—a departure from traditional public market regimes. This reflects its design as a venue for informed, professional market participants rather than retail exposure, although eligible retail investor protections are incorporated under a revised Financial Promotion Order (FPO) exemption.

Firms applying to operate PISCES platforms must demonstrate proportional but effective systems for trading supervision and risk mitigation.

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Practical Implications for Venture-Backed Companies

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1. Liquidity as a Talent Tool: The ability to offer employees a periodic route to monetise equity stakes enhances the attractiveness of EMI and CSOP options and can improve staff retention.
2. Strategic Fundraising Alternative: PISCES trading windows may serve as a bridge between funding rounds or a substitute for down-round avoidance, offering partial liquidity while maintaining private status.
3. Increased Secondary Market Activity: Venture funds may utilise PISCES to sell portions of maturing portfolio holdings, accelerating distributions without requiring a full exit.
4. Governance and Disclosure Preparedness: Companies eyeing PISCES participation should begin internal readiness assessments, including shareholder consents, updated Articles, information disclosure policies, and regulatory liaison.
5. Avoiding Tax Pitfalls: Boards must take care to avoid inadvertently creating RCAs at grant. For example, pre-emptively indicating a plan to join PISCES in employee communications or option paperwork could create unexpected tax liabilities.

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Conclusion

The introduction of PISCES opens a new chapter in the evolution of the UK private capital ecosystem. It provides a viable secondary liquidity mechanism without compromising private status, potentially rebalancing the listing equation for scaleups and growth-stage firms. With the sandbox now open for operator applications, companies, founders and investors should consider early engagement to capture first-mover advantages and build regulatory-compliant frameworks for participation.

PISCES should be welcome news for companies with tax advantaged share option schemes, namely, EMI Scheme and CSOP Scheme. It provides liquidity in shares and therefore, employees and directors could realise the growth in value of their option shares in a tax efficient manner without having to wait for an ‘exit event’ such as an IPO or a sale of the Company.  Furthermore, the introduction of proposed legislation to allow amendment of existing EMI Options and CSOP Options so that they can be exercised and the shares sold on PISCES with the tax advantages retained should be great news. Companies should take specific legal and tax advice with regard to their existing tax advantaged share option plans as well as for new plans.  At Avery Law, we continue to monitor regulatory developments and stand ready to advise clients on structuring and optimising their participation in this innovative market.

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