Securities Regulation Daily SEC, CFTC brace for possible government shutdown
Friday, December 21, 2018

SEC, CFTC brace for possible government shutdown

By Mark S. Nelson, J.D.

The SEC and the CFTC issued plans to govern their operations if the White House and Congress are unable to agree on a short-term continuing resolution (CR) or otherwise enact minibus appropriations legislation to fund the federal government for the remainder of the current fiscal year. The president recently signed a CR that will expire December 21, 2018. Earlier in the week, the Senate introduced and passed a new CR that would fund the government until February 8, 2019 without including funding for a controversial border wall, but the House has since passed an amended version of that CR (H.R. 695) that adds funding for a border wall. As of publication, the prospect for enactment of a CR before current appropriations lapse remains uncertain, although some media reports suggest that a possible deal to fund the government may emerge before the deadline.

According to the SEC’s website, the agency will implement its operations plan if there is a government shutdown with emphasis on the "market integrity and investor protection components" of its tripartite mission of investor protection, facilitating capital formation, and maintaining fair, orderly and efficient markets. Previously, the SEC had said it could remain open for several days following a funding lapse (the agency will be closed on December 24 and 25 for the upcoming holiday), but the latest posting on its website states that operations after December 26 could be become more challenging and that it would have an "extremely limited number of staff members available to respond to emergency situations" regarding investor protection and market integrity (the statement said that would include law enforcement).

The SEC’s Division of Corporation Finance posted a Q&A primarily focused on how entities seeking to accelerate or qualify registrations should proceed. CorpFin advised that entities should contact the SEC while the agency is open and operating. Moreover, the Q&A stated that "[r]egardless of our operating status, EDGAR will accept registration statements, offering statements and other filings." The Division of Investment Management stated on its own webpage that it would generally adhere to the procedures announced by CorpFin, but that its staff may be unable to review some types of acceleration requests, which would have to wait the full time required by rule until the SEC reopens.

Likewise, the CFTC posted an updated version of its operations plan for dealing with a possible government shutdown. According to the CFTC: "In the event that a lapse of appropriations occurs, the CFTC will severely curtail its operations until additional appropriations are enacted into law, and expects that the vast majority of the agency's operations will cease."

The CFTC also said it has identified employees who may perform emergency functions. On this point, CFTC Chairman J. Christopher Giancarlo said the following in a public statement: "But regardless of any shutdown, the CFTC will ensure its market-critical functions continue to be carried out. Among other things, during any shutdown a small team of CFTC employees will continue to monitor futures and swaps markets, ensure essential enforcement activities are carried out, and evaluate market activity across futures and swaps to identify any potential impact on the clearing system. Staff performing these excepted functions will be in communication with key market participants, which will continue their own market and risk surveillance activities."

Both the SEC and the CFTC operations plans cite a government document detailing when agency operations may continue during a lapse in funding. Specifically, agency operations may continue: (1) when there is a continuing funding source; (2) Congress has expressly authorized the operations; (3) when agency operations are "necessary to prevent an imminent and significant threat to the safety of human life or the protection of property;" (4) when agency operations are necessary for the president to discharge constitutional duties; and (5) agency operations are needed for a short period to provide for an orderly shutdown.

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