The London-based exchange plans to hold regular sales of shares in private companies in a bid to unlock liquidity for investors and company shareholders.
The London Stock Exchange aims to hold its first auction of shares in private companies by the end of this year, providing a new avenue for corporate investors to buy or sell equity in startups pre-IPO.
In May the UK government delivered legislation to create a so-called Private Intermittent Securities and Capital Exchange System (PISCES). The bill creates a regulated platform for investors to trade private company shares on a regular basis such as in monthly or quarterly auctions. The London Stock Exchange is positioning itself as the operator of choice for the platform.
The goal of creating a private securities market exchange is to free up liquidity for investors and company employees who want a way to generate cash amid a dearth of initial public offerings in the stock market.
It is also aimed at allowing startups to access capital and scale by providing a way for them to widen the net of potential investors in their shares.
Unlike in public markets, the private securities exchange auctions would only require that detailed company disclosures and pre- and post-trade data such as bid and offer prices and settlement information be made available to investors on the platform and would not be disseminated publicly.
“You should be able to get frequent, repeatable liquidity events where there’s a bit more clarity and certainty over things like price, like volume, certainly settlement,” said Mark James, private market securities consultant to the London Stock Exchange, at the Global Corporate Venturing Symposium in London last week.
The London Stock Exchange auctions of private company shares would give corporate investors an alternative to selling in the secondary market, where transaction volumes have surged over the past 18 months as companies have sought to offload investments rather than wait for traditional exits such as IPOs or mergers and acquisitions.
Secondary market trades tend happen on a bi-lateral or bespoke basis, making it an opaque market where pricing is hard to determine. The London Stock Exchange auctions would bring some pricing clarity to investors.
It would also provide investor protections that unregulated bilateral trades do not have, such as a legal framework and regulatory oversight.
“If we get this right, it should be more regular and repeatable,” said James.
A broad swathe of investors from VCs and corporate VCs, family offices to sovereign wealth funds have shown interest in the private securities market exchange platform, said James.
It is expected that large, later stage companies would participate in the auctions initially. The platform would be open to international companies and investors as well as those in the UK.
