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According to Ganesha, the Indian Express’s resident astrologist, here’s today’s horoscope for Pisces:
While your earnings may not see a significant boost today, you’ll also avoid unnecessary expenses. Ganesha predicts a balanced day where you manage to maintain your financial equilibrium without any losses.
Only some of that applies to Pisces, the FCA’s proposed platform for trading shares in private companies. Expenses are being avoided, though financial equilibrium won’t be easy to maintain. Here’s the FT story on Pisces, the press release, the consultation paper and the draft statutory instrument.
The big idea behind Pisces is a buyer-beware market where investor safeguards won’t apply. Company disclosure is largely discretionary. Insider trading is allowed. Exchanges can set their own entry criteria and companies they list will decide when shares can be bought and sold. Day-to-day monitoring for fraud and market manipulation will be the responsibility of participants. Companies caught lying will be asked to compensate shareholders, assuming they’re still solvent.
If all goes to plan, Pisces (it stands for Private Intermittent Securities and Capital Exchange System) will go live next year within the FCA’s “sandbox” programme, where rules can be tweaked on the fly.
The regulator doesn’t intend to monitor company disclosures, which won’t be made publicly available by default and don’t need to be signed off by the exchange operators. Core reporting requirements cover obvious stuff like major shareholders and material litigation, but Pisceans get to choose what’s important to investors based on their own circumstances. All the core requirements are skippable so long as the company can provide a summary explanation as to why.
The regulator may yet ask private companies using Pisces to announce all price-sensitive information, but is currently of the view that a so-called “sweeper” requirement would be too burdensome. If an investor wants to know more than they’ve been told, it’s their responsibility to ask, it says.
What if insiders want to trade on non-public information? Knock yourself out:
Pisces operators are required to provide a well‐functioning market for both buyers and sellers. However, there will be a higher risk than in public markets that some investors, such as company employees, could have access to information not available to all other investors. This may benefit some market participants over others. This risk is compounded by potential information‐sharing occurring in the private market before a Pisces trading event. Our disclosure arrangements aim to reduce this risk by providing appropriate information to investors. However, as the civil or criminal insider dealing regimes will not apply, persons will not be prohibited from sharing and trading on confidential information. Accordingly, it is important that investors understand and accept these limitations before participating. As this could affect the fairness of the market, we will monitor this during the Pisces sandbox period.
Compensation might be offered for negligence, particularly on forward guidance, though the burden of proof looks very high. No refunds will be offered if “officers reasonably believed the core information to be true and not misleading,” says the FCA, which isn’t always the best at holding officers to account.
A low-intervention approach even extends to sub-editing. Simon Walls, the FCA’s interim executive director of markets, says in the foreword: “The draft legal change that would enable Pisces envisage a range of different investors will be able to access Pisces trading events, enabling a broad pool of liquidity.”
Word soup aside, what’s being proposed is a matchmaker service between self-certified sophisticated investors and employees eager to cash out. Banks with client relationships to maintain, the usual organisers of secondary share sales, can be bypassed. The regulator wants to accept no responsibility for what happens next.
We can’t say how big the liquidity pool will be for what looks like a real-money trial of Akerlof’s lemon problem. Previous attempts at market deregulation suggest that the average investor tends to prefer more protection, not less:
Still. The absence of oversight means Pisces ought to be cheap to regulate. That’s no bad thing. The FCA’s funding requirement rose by 10.7 per cent this year to £755mn, which was nearly 15 times last year’s rake from fines. Experimenting with a laissez-faire approach to market abuse might offer a better way forward.
Read the full article here