Federal law (the “Antideficiency Act”) restricts the conduct of business by agencies during a lapse of Congressional appropriations, looming this weekend, and federal regulations (OMB Circular A-11) require agencies to have plans for an orderly shutdown. The Securities and Exchange Commission (the “SEC”) published its general plan in July (updating the plan it adopted in 2018 for that year’s shutdown) and certain divisions and offices issued specific implications this week, including detailed guidance from the Division of Corporation Finance. Here is a rundown—all of which is subject to change as the process of a government shutdown unfolds:
Skeleton Staff and Functions. All SEC employees are subject to furlough during a shutdown, with an exception for a small number of personnel whose duties relate to functions that qualify as exceptions to the Antideficiency Act restrictions. These are generally limited to have staff available to respond to emergency situations involving the safety of human life or the protection of property, including law enforcement. Most SEC functions generally will be discontinued during a shutdown, with certain systems that operate using external funding operating on modified terms.
EDGAR Open. Since EDGAR is operated under contract with a third party, so long as the third party is funded, EDGAR is expected to function during a shutdown. Companies should continue to prepare and file periodic and current reports as usual and EDGAR will also accept other filings. SEC staff will process requests for EDGAR access codes and password resets and answer questions about fee-bearing EDGAR filings and other emergency questions regarding EDGAR submissions.
Processing Stops. The Divisions of Corporation Finance, Investment Management, Trading and Markets, and Examinations will be unable to process filings, provide interpretive advice, issue no-action letters or conduct any other normal activities. New or pending registration statements or applications for exemptive relief will not be processed during a shutdown regardless of the status of any review of those filings.
Acceleration Requests. During a shutdown, the Division of Corporation Finance will not grant requests for the effectiveness of registration statements or qualification of offering statements. The Division of Corporation Finance suggests considering submission of an acceleration request before a shutdown, for registrants whose pending registration or offering statements are substantially complete and have met all statutory requirements. Such requests can be made even absent a FINRA no-objections statement on underwriting compensation arrangements, as long as the underwriters confirm that they will not proceed until such a statement is received.
Pending Registrations. Technically, registration statements become effective after 20 days unless the SEC issues a stop order, though it is customary to include a delaying amendment so effectiveness occurs only when the SEC declares it. Anticipating an SEC shutdown, companies whose registrations are pending with the delay provision could consider filing an amendment to remove the delaying feature. The SEC advises this is permissible as a technical matter, so long as adhering closely to the procedures for amending a registration statement, but also advises considering the pros and cons of such an approach given the context, including any unresolved staff comments and disclosure liability risks.
Shelf Registrations. During a shutdown, issuers with effective shelf registration statements should be able to access capital markets through takedowns upon filing their prospectus supplements on EDGAR because a prospectus supplement does not need to be declared effective by the staff. Well-known seasoned issuers may file new shelf registration statements which become effective upon filing on EDGAR.
IARD. Since IARD is operated under contract with a third party, so long as the third party is funded, IARD is expected to function. IARD will accept annual and other amendments to Form ADV, Form ADV-W, and Form ADV-E filings. But the Division of Examinations will be unable to approve applications for registration by investment advisers or give interpretive advice regarding the Advisers Act and related regulations. No new or pending investment adviser applications will be processed during a shutdown.
CRD and Transfer Agent Registration (TAR) System. The CRD and TAR system will function and accept filings. But the Division of Trading and Markets and the Division of Examinations will not review pending filings, consider new or pending applications or registrations, provide interpretive advice, or issue no-action letters.
EFFS. The EFFS system for SRO proposed rule changes will function and accept submissions. Days when the SEC is shutdown will not count as “business days” as that term is used in Section 19 of the Exchange Act and Rule 19b-4. Any SRO proposed rule change submitted through EFFS on such a day will be treated as filed the next business after a shutdown ends.
Tips, Complaints and Referrals. The Division of Enforcement will have limited staff to perform excepted functions. However, staff will attempt to respond to certain critical matters, including allegations of ongoing fraud and misconduct. The Tips, Complaints, and Referrals website will function during a shutdown and submissions during and be reviewed for appropriate action.
Investor Complaints. During a shutdown, the Office of Investor Education and Advocacy will have limited staff to review investor complaints submitted through the investor complaint form. The Office will not respond to complaints, questions, or requests for information.
Comment Letters and Public Input. During a shutdown, while comment letters can be submitted on the website, by email or postal mail, the SEC will not post them during a shutdown.
Public Reference Room and FOIA. The public reference room will be closed during a shutdown and, absent a compelling need, requests for information under the Freedom of Information Act will not be processed.