LONDON, April 9 (Reuters) - Britain's Financial Conduct

Authority (FCA) has set out proposals for a new platform - The

Private Intermittent Securities and Capital Exchange System

(PISCES) - to enable trading of shares in private companies.

A cornerstone of the regulator's aim to bolster Britain's

capital markets, the FCA hopes PISCES will connect owners of

fledgling unlisted companies who want to sell their equity with

new investors keen to help those firms to grow and scale up.

The UK Treasury intends to put legislation on the legal

framework for PISCES before Parliament by May.

The platform will be further developed using a "financial

markets infrastructure sandbox", which will allow the FCA to

road-test the design and trouble-shoot any problems identified

by users before finalising its permanent rules.

HOW WILL IT WORK?

Private company equity owners who wish to sell some or all

of their stock can set up an auction on PISCES, which will

effectively act as a shop window for the firm and a marketplace

for investors keen to put money into promising start-ups.

Companies wishing to run a PISCES platform will have to

apply to the FCA, and once approved will be able to run

intermittent trading events, at which company owners can offer

stock for sale at regular intervals, at prices they set, to new

shareholders.

Under current proposals, company owners will have a degree

of power to screen or vet the investors who might seek to buy

their shares, to keep competitors off their shareholder

registers or prevent any single party from gaining outsized

influence on the company.

The platform cannot be used to issue new shares, only to

trade existing stock.

WHAT ARE THE KEY BENEFITS FOR PARTICIPANTS?

PISCES could help small companies who have limited

experience of capital markets get on the radar of cash-rich and

supportive investors, without undertaking a full-scale public

offering (IPO).

Under the current PISCES proposals, owners will need to

disclose only a small fraction of company information to

prospective investors compared with an IPO process, when much

more sophisticated and heavily-regulated prospectuses are

required.

Firms can hold auctions at regular intervals, which can

boost their ongoing investability by supporting liquidity in

their stock.

Using a semi-pubic platform like PISCES is expected to be

cheaper and faster than mandating a bank to lead a private

placement.

As an extra incentive, Britain's finance ministry has

pledged to make trading on PISCES exempt from a trading tax

called stamp duty. Share trades struck on other UK public stock

exchanges are subject to this levy, a fact some critics say has

hurt market liquidity and reduced the appeal of UK equities.

WHAT ARE THE KEY DISADVANTAGES FOR PARTICIPANTS?

Once firms opt to hold an auction on PISCES, there is no

guarantee investors will place orders at the prices they set and

company owners can offload smaller volumes than they hoped to.

It is not yet clear whether firms will be required to

publicly disclose the prices they achieved in an auction after

the event.

In contrast, bankers running private stock sales have

extensive networks of investors they can tap and greater

marketing muscle to help company owners achieve best execution.

They can also strive to keep the outcome of any sales out of

the public eye, meaning firms can keep sensitive details

pertaining to their valuations under wraps.

Investors who buy stakes in firms on PISCES will also have

fewer protections against possible market abuse.

Company owners will likely be subject to much lighter

disclosure rules than those governing publicly-quoted firms and

some shareholders will have far quicker, deeper access to

information about the firm's performance than others. This could

make the market a no-go zone for risk-averse investors.

WHAT IMPACT WILL PISCES HAVE ON BRITAIN'S CAPITAL MARKETS?

With the final rules to be decided, the first trades will be

heavily scrutinised. Many investors with deep pockets say they

will likely continue to use advisers to find the best start-ups

to support, while some company owners see too much risk in

poorly received semi-public auctions.

Some owners are wary about exposing their fledgling firms to

any kind of capital market volatility that could have

long-lasting impact on their value.

One senior investment industry source said most UK

institutional fund managers had to meet strict criteria on

liquidity when taking a new position, and the risks of being

unable to exit an asset acquired on PISCES were unclear.

Some advisers are concerned they won't be sufficiently

rewarded for the risk in recommending a PISCES auction to a

client, with exchange operators expected to claim a hefty chunk

of the fees.

Several platforms offering trading in private company shares

are already in operation, but PISCES has the backing of the

government, the FCA and the London Stock Exchange Group ( LDNXF )

, which is likely to boost its profile domestically and

internationally.