A potential government shutdown in the United States could have significant implications for the Securities and Exchange Commission (SEC), according to the agency’s chair, Gary Gensler. Gensler warned lawmakers that the SEC would be severely understaffed, with only a “skeletal” workforce remaining if the shutdown occurs. This reduction in staff would hinder the SEC’s ability to approve companies’ initial public offerings (IPOs) and respond to market turbulence. Gensler advised companies to complete their IPO processes before the possible shutdown to ensure unhindered access to the markets. The looming shutdown could cause disruptions in the IPO market, which recently saw hopes of a revival following a two-year slowdown.
If a government shutdown does take place, the SEC would lose over 90% of its workforce to unpaid furloughs, leaving only essential functions operational. This would impact the agency’s ability to supervise US markets, write rules, and approve companies’ IPOs. Gensler stressed the urgency for companies to complete their IPO processes before the potential shutdown to avoid being in a state where their access to the markets is limited due to the SEC’s inability to review their offerings effectively. The IPO market has recently shown signs of picking up, with notable offerings in the pipeline, including Birkenstock Holding, Waystar, and BrightSpring Health Services. However, doubts have arisen regarding the IPO market’s resurgence following the lackluster performance of recent IPOs.
The SEC’s contingency plan outlines that only about 440 of the agency’s 4,600 employees would remain to handle essential functions during a shutdown. Investigations and responses to whistleblower complaints would largely come to a standstill. The agency would focus on protecting life and property, market technology operations, monitoring distressed broker-dealers, and overseeing money market funds. However, if a major disruption were to occur on Wall Street, the SEC would still face significant challenges with a “skeletal” staff. In contrast, the Financial Industry Regulatory Authority (FINRA), an industry-financed brokerage oversight body, confirmed it would continue operating during a potential shutdown. The uncertainty surrounding the shutdown, coupled with concerns about interest rates, has led to mixed performance in major Wall Street indexes. Maxine Waters, the top Democrat on the House committee, warned that a shutdown would have detrimental effects on US investors, small businesses, and working families. Waters highlighted the potential impact on the SEC’s ability to combat fraud, assist businesses in raising capital, and finalize investor-critical regulations.