The strategic role of Employee Benefit Trusts in the PISCES era

This marks a pivotal moment for private companies, especially those seeking innovative ways to manage employee share schemes and unlock liquidity without the complexities of a public listing.

What is PISCES and why it matters

PISCES is a newly regulated secondary market designed to facilitate intermittent trading of shares in private companies. The primary aim of PISCES is to make it easier for private companies, their shareholders (whether investors or employees) to generate liquidity in their own share capital.

This flexibility is particularly valuable for growth-stage businesses / scale-ups that want to offer liquidity to shareholders (especially employees) without pursuing an IPO or trade sale or who need to a bridge to do so in the future..

The PISCES regime is being established by HM Treasury under a financial market infrastructure sandbox. Operators must be established in the UK and be either a recognised investment exchange or hold the relevant permission under the Financial Services and Markets Act 2000, to apply to be a PISCES platform operator.

The LSE’s are the first such operator to obtain approval. Its involvement ensures robust infrastructure and credibility, setting the stage for broader adoption across the UK’s private sector.

The LSE’s platform will be known as the Private Securities Market and the LSE has published draft market rules to include the Private Securities Market Rules which deal with how companies can join/how the market will operate and the Private Securities Market Handbook which deals with compliance and enforcement of the relevant rules.

Key benefits for companies and employees

The introduction of PISCES brings several strategic advantages:

Stamp Duty and Stamp Duty Reserve Tax exemption

Transactions conducted on PISCES platforms are exempt from Stamp Duty and Stamp Duty Reserve Tax, reducing the cost of share transfers.

Enhanced Liquidity Events

Companies can schedule trading windows that allow employees to realise value from their shares, improving retention and incentivisation.

Flexible Trading Mechanisms

Compared to traditional private share sales, PISCES offers more adaptable trading arrangements, tailored to each company’s needs.

Reduced Disclosure Burden

Companies benefit from lighter disclosure requirements than those imposed by public markets, preserving confidentiality and reducing compliance overheads.

However, companies themselves cannot currently buy back shares via PISCES. This limitation underscores the importance of alternative mechanisms, most notably Employee Benefit Trusts (EBTs).

Employee Benefit Trusts

EBTs are poised to become valuable tools in the PISCES ecosystem. These trusts can act as buyers during PISCES trading events, acquiring shares that can later be distributed to employees under share incentive plans.

This not only facilitates liquidity but also ensures compliance with tax-advantaged schemes like Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP), which have recently been updated to accommodate PISCES transactions without jeopardising their tax benefits.

By using an EBT, companies can:

Create Internal Liquidity

EBTs can purchase shares from employees or other shareholders, enabling liquidity without requiring a public market.

Support Share Plan Governance

Independent trustees ensure that share plans are administered professionally and in line with regulatory requirements.

Maintain Confidentiality

EBTs can act as nominee shareholders, simplifying the shareholder register and protecting sensitive employee allocation data.

How ZEDRA can help

ZEDRA stands out as a leading provider of Employee Benefit Trust services, with decades of experience supporting both listed and private companies.

Our flexible solutions are tailored to meet the unique needs of each client, whether it’s managing executive long-term incentive plans, collaborating with share plan administrators, brokers, and custodians, or providing nominee services.

With a deep understanding of the evolving regulatory landscape and a proven track record in trustee governance, our team of experts is uniquely positioned to help companies navigate the opportunities presented by PISCES.

Contact Head of Incentives, Nicola Brown, to find out more.