SEC Operational Plans If Government Closes Down (NYX, NDAQ, CME, ICE, CBOE)

If you are like the rest of who are upset about some ‘minor market issues’ like Bernie Madoff, Raj, Octopussy, and the dozens of other extreme violations of securities laws, then you are probably not going to love what things will look like for the police agency of the financial markets in the United States if the federal government closes down.  The still-possible government shutdown would have a profound impact in all government agencies, but the Securities and Exchange Commission has issued what its limited operations will be. 

It will be interesting to see what regulations are and are not applied at NYSE Euronext, Inc. (NYSE: NYX), NASDAQ OMX Group Inc. (NASDAQ: NDAQ), IntercontinentalExchange, Inc. (NYSE: ICE), CME Group Inc. (NYSE: CME), and CBOE Holdings, Inc. (CBOE).  Perhaps the only police there will be themselves and each other.

FINRA has not issued any public announcement on its regulatory operations, however FINRA is not a federally funded government agency and would therefore not be under the same shutdown rules.  I placed a call into the media relations and the official answer is that FINRA is not funded by the government so it would not be closed down.  FINRA regulates the brokerage firms, regional offices, and registered representatives who sell and trade in securities. 

As a reminder, government workers are supposed to be forbidden to show up for work and are supposedly forbidden from work operations in remote offices and even from home.  How many government workers will honor that is something which we won’t address.  The markets could find themselves without the market police monitoring the situation.  The financial markets have historically wanted to be SROs, or self-regulating organizations, but even most market participants will probably agree that self-regulation without oversight would have allowed the financial meltdown to get even worse.

So, the SEC has outlined its “SEC Functions During the Federal Government Shutdown” if this comes to pass.  The full details are here.  It has outlined the following:

• The SEC will have only an extremely limited number of staff members available to respond to emergency situations involving the safety of human life or the protection of property, including law enforcement. Certain Commission systems will be operating under modified conditions.
• EDGAR will remain fully functional, but the Divisions of Corporation Finance, Investment Management, and Trading and Markets, and the Office of Compliance Inspections and Examinations will be unable to process filings, provide interpretive advice, issue no-action letters or conduct any other normal Division and Office activities.
• The IARD system will remain fully functional and will continue to accept filings but the Compliance Inspections and Examinations department will not be available.
• The CRD system will remain fully functional and continue to accept filings and the Transfer Agent Registration System will also continue to accept filings; but the Division of Trading and Markets and the Office of Compliance Inspections and Examinations will not be able available.
• The EFFS system for SRO proposed rule changes will remain functional but a day that the SEC is not open for regular business is not a “business day.”
• The Division of Enforcement will have only a limited number of staff on duty to perform critical functions even if staff will attempt to respond to allegations of ongoing fraud and misconduct.
• Investor Complaints via the Office of Investor Education and Advocacy will have a limited number of staff on duty to review investor complaints but will be unable to respond to complaints, questions, or requests for information.
• Comment Letters and Public Input can be submitted but there will only be “an extremely limited number of staff members on duty.”
• The Public Reference Room would be closed.
• Mail Delivery will have a limited number of staff on duty to process incoming mail from 8 a.m. to 5:30 p.m. Monday through Friday to take in mail and accept packages from couriers, but processing delays are expected. 
• In emergency situations, you will be able to reach an extremely limited number of SEC staff to respond to emergency situations.

The SEC’s full plan and contact data is here. 

We apologize if this is a bit dry, but if we are going to cover the financial markets at a time when the markets’ policemen are not watching we want you to know what the rules of the game will be.

JON C. OGG