As shutdown looms, companies should go public ‘before Friday’ -US SEC chief

By Douglas Gillison

(Reuters) -A looming government shutdown would reduce U.S. Securities and Exchange Commission (SEC) staffing to “skeletal” levels, stopping it from approving companies’ Wall Street debuts and hindering its ability to respond to any market turmoil, its chair told lawmakers on Wednesday.

Hundreds of thousands of federal workers will be furloughed and a wide range of services will be suspended if Congress fails to pass funding legislation that Democratic President Joe Biden can sign into law by midnight on Saturday (0400 GMT Sunday).

When questioning SEC Chair Gary Gensler during an oversight hearing on Wednesday, Democratic lawmakers on the House of Representatives’ Financial Services Committee, who are in the minority, sought to highlight the dysfunction they said would follow a shutdown.

Gensler said the agency would lose more than 90% of its workforce to unpaid furloughs, leaving a “skeletal” staff to perform essential functions, which include monitoring U.S. markets, according to the agency’s contingency plan.

Other everyday functions, such as writing rules or approving companies’ initial public offerings (IPOs), would be frozen.

“If a company were deciding to go public or raise offerings, they’d want to go effective before Friday if they’re ready to,” Gensler said. “If not, they might be in a sort of subliminal state where they can’t access the markets because we can’t effectively review those.”

A recent batch of high profile IPOs, including chip-designer ARM, grocery delivery company Instacart and marketing automation firm Klaviyo, had raised hopes of an IPO resurgence after a two-year lull due to market volatility and rising Federal Reserve interest rates. But the lackluster performance of those offerings has since raised doubts over whether that revival would materialize.

Notable IPOs in the pipeline include healthcare payments tech firm Waystar, KKR-backed BrightSpring Health Services. German premium footwear maker Birkenstock Holding will proceed with plans to list on the New York Stock Exchange (NYSE), believing it can obtain approval even if a shutdown occurs, sources told Reuters.

Spokespeople for Birkenstock, NYSE and Nasdaq, the country’s other listing venue, declined to comment. Spokespeople for Waystar and BrightSpring did not immediately respond to requests for comment.

According to the SEC’S contingency plan, only about 440 of its 4,600 employees would remain on hand to perform essential functions, but investigations and responses to whistleblower complaints would mostly grind to a halt.

Legally permitted functions include actions to protect life or property, such as certain law enforcement measures and litigation, including temporary restraining orders and maintaining a portal for whistleblower complaints.

The agency will also monitor market technology operations, keep an eye on broker-dealers that may fall into distress, and perform money market fund surveillance and monitoring.

But Gensler acknowledged that should a major disruption occur on Wall Street, “senior leadership would be there but again we’d be down to a skeletal staff.”

Separately, the Financial Industry Regulatory Authority (FINRA), an industry-financed brokerage oversight body, said Wednesday it would continue to operate in the event of a shutdown, including market surveillance and enforcement functions.

Major Wall Street indexes were mixed toward the close after paring earlier losses driven by investor concerns about the path of interest rates, with shutdown fears also weighing on earlier trading.

Top Democrat on the House committee Maxine Waters warned on Wednesday that a shutdown threatened U.S. investors, small businesses, and working families.

“(A) shutdown would cripple the SEC’s ability to stop fraud, help businesses raise money, or finalize rules that are critical to investors,” she said.

(Reporting by Douglas Gillison in Washington and Lance Tupper and Lewis Krauskopf in New York; additional reporting by Laura Matthews, Anirban Sen and Echo Wang; Editing by Michelle Price, Paul Simao, David Holmes and Alistair Bell and Aurora Ellis)