| WASHINGTON, Sept 30
WASHINGTON, Sept 30 If a budget stalemate in the
U.S. Congress leads to an extended federal government shutdown,
investors can expect potential interruptions to financial
product approvals and new rules, though market oversight would
not grind to a halt.
Most U.S. agencies would start shuttering all but the most
critical operations, keeping only skeleton staffs at work, if
lawmakers cannot reach a deal on a spending bill by midnight.
That means the U.S. Securities and Exchange Commission would
still have an eye on exchange activity, potential insider
trading and money market funds. But if a shutdown lasts more
than a few days, it would not be able to review applications to
register shares with regulators, including initial public
offerings, or offer new financial products, according to an
The exact timing of when the SEC would cease some functions
is unclear. The agency says it will remain open and operational
on Oct. 1, even if a budget deal is not reached. But industry
watchers say a more extended shutdown would impair the SEC's
ability to foster capital raising.
"There's been a huge recovery in the number of IPOs this
year relative to the last few years," said Izzy Klein, a
financial services lobbyist with the Podesta Group. He said an
SEC slowdown in approvals could hurt that recovery.
Federal government funding runs out at midnight, the end of
the 2013 fiscal year. Members of the House of Representatives
and the Senate would need to agree on a plan to pay for the
government, even temporarily, to keep the doors open on Tuesday.
Lawmakers have averted several such crises in the past. They
have been unable to agree so far, in large part because a number
of Republicans want to delay President Barack Obama's signature
health reform law as part of any deal to fund the government.
A shutdown would not mean a financial free-for-all.
Bank regulators, including the Federal Reserve and the
Consumer Financial Protection Bureau, would stay open because
they do not rely on Congress for funding.
The SEC and the Commodity Futures Trading Commission, on the
other hand, do rely on government appropriations for funding.
But they plan to maintain some market-monitoring activities.
In fact, some experts say shutting down the government would
be a minor blip for markets compared with what would occur later
this month if lawmakers do not raise the debt ceiling.
"The conventional wisdom is this is a precursor for the debt
ceiling fight, which will have immediate and substantial
ramifications for the economy," said Jason Rosenstock, head of
government relations at ML Strategies in Washington.
But markets could see some impact from a government
shutdown, particularly if it dragged on more than a few days.
The CFTC said it would stop reviewing victim complaints and
assisting other law enforcement agencies. CFTC Chairman Gary
Gensler said last week his agency was rushing to approve a new
type of trading platform because such reviews would have to stop
if the government shut down.
Work on new rules, including those required by the 2010
Dodd-Frank Wall Street oversight law, would pause at those two
agencies. The SEC is due to release rules related to
asset-backed securities but they could face delays.
Agencies besides the two regulators also would be affected.
The Justice Department's antitrust division, which is
preparing to litigate to stop American Airlines from
merging with US Airways, would keep working on merger
investigations but stop any activities that could be delayed.
The Federal Trade Commission would suspend all but its
merger investigations. That is because the agencies have a
limited window during which they can challenge mergers.
Some market-sensitive data also could be delayed, including
the monthly employment report.
The U.S. Energy Information Administration said on Monday it
did not know if it would publish its weekly inventory data if
the government shut down. That data lists U.S. supplies of crude
and fuels, including gasoline, and is closely watched by
"The view is that the longer it goes on, the worse it
becomes," Podesta Group's Klein said. "Is one day just a hiccup
or does it have some reverberations? I don't know."