Guest Insight: The London Stock Exchange outline how the Private Securities Market could unlock UK tech company liquidity
Guest blog by Tom Simmons, Director, Private Markets Development, London Stock Exchange. Tom outlines how the London Stock Exchange is looking to launch a new market – The Private Securities Market - its venue for PISCES that will support tech businesses with unlocking liquidity when they need it, on their terms.
It’s well known that fast-growing UK tech companies often face a dilemma. They need to find ways for early shareholders and employees to monetise their stakes, without distracting themselves from their core mission of growing the business. When weighing up their options, companies need to think about whether a liquidity mechanism can facilitate the right level of buying and selling demand, without introducing a disproportionate administrative overhead for their company.
When the London Stock Exchange’s Private Securities Market launches – using the UK Government’s PISCES (Private Intermittent Securities and Capital Exchange System) regulatory framework – it will provide a new and exciting option for companies to solve this problem. Private company shareholders will be able to trade shares through a market designed specifically for them.
The market will introduce a new era of private company liquidity. It will enhance liquidity for private companies, helping companies to develop their shareholder base.
What is the Private Securities Market?
The Private Securities Market will allow companies to auction shares during planned trading windows on a particular day, scheduled by the company. The Private Securities Market venue makes use of the same technology and infrastructure that powers the public market of the London Stock Exchange daily. The company maintains control over the process, meaning the efficiency, resilience and scalability of this infrastructure can be deployed for auction events targeting either a controlled list of investors or any investor who is eligible to access the market. Companies can make use of the same existing global network of London Stock Exchange member firms that investors use to buy and sell public shares through already. Company disclosures are only made available to the investors that companies want to participate in their auctions.
The market will have scheduled trading windows, allowing companies to set specific dates for trading, providing more predictability than usual sale negotiations.
The market will be available for a variety of different investors, including institutional and sophisticated investors. All existing shareholders of participating companies, including company employees, will be able to sell shares, with eligibility criteria for buying investors set in legislation.
By aligning disclosure requirements which are underpinned by the PISCES regulatory framework with market windows and providing predictable investor protections, the market will make it easier for private companies to:
- manage liquidity,
- facilitate investor access, and
- develop their shareholder base
Strategic liquidity benefits
For tech companies, the market will offer a new way to provide liquidity for shareholders of all kinds. Whether you’re VC-backed, private equity-owned, family- or founder-owned, or a corporate subsidiary, it gives you greater flexibility for rewarding early investors, incentivising employees and developing your shareholder base.
The Private Securities Market will deliver the following benefits:
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Manage investor exit pressure – Give early investors liquidity options while keeping later investors who are committed to longer-term growth. This is especially useful if investors who participated in earlier funding rounds have a higher need for liquidity.
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Incentivise employees with equity – Attract tech talent with meaningful share options, supported by realistic exit opportunities. Employees can be confident in realising their share options’ value without having to wait for a single, and possibly uncertain, exit event.
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Empower founders to diversify wealth – Enable founders to gradually reduce the concentration of their wealth by selling their shares through multiple auctions.
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Simplify complex ownership – Consolidate dozens of small shareholders into fewer, larger positions though auctions with minimum purchase requirements. This means many small sales can be matched against a smaller number of large purchases.
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Prepare for IPO or fundraising – Build investor relationships and market familiarity ahead of an initial public offering (IPO) or a major fundraising round. This could be attractive for companies already disclosing significant corporate information to existing and potential investors.
Getting involved
If you’re interested in hearing more about the Private Securities Market and how it can unlock UK tech company liquidity – or you think you might want to use the market – please get in touch with the team at the London Stock Exchange through their website.
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