MutualFundWire.com: SEC Staff Goes Home: No New Funds

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Tuesday, October 1, 2013

SEC Staff Goes Home: No New Funds

Well, they gone and done it, and thanks to the shutdown, there will be processing of any new fund filings, among other things.

From the SEC's plan of operations during the shutdown, the following functions are in hiatus.

SUMMARY OF MAJOR FUNCTIONS THAT WILL BE DISCONTINUED

Law Enforcement/Litigation:
Ongoing litigation, except matters that cannot be deferred as described above; investigative work, including commencing investigations and conducting investigative testimony, except as necessary for the protection of property; pursuing the collection of any delinquent debts or work to distribute funds to harmed investors; and non-emergency examinations and inspections and related follow-up.

Processing and Approvals of Filings and Registrations by Registrants and Regulated Entities:
Review and approval of applications for registration by entities (e.g., investment advisers, broker-dealers, transfer agents, nationally recognized statistical rating organizations, investment companies, and municipal advisors) and with respect to new financial products; review and approval of self-regulatory organization rule changes; review and acceleration of effectiveness of registration statements by issuers for securities offerings; review of periodic reports and other filings; and non-emergency support to registrants.

Rulemaking/Interpretive Questions/Exemptive Relief:
All non-emergency rulemaking; non-emergency interpretive advice, staff no-action letters and processing new or pending applications for exemptive relief.

Oversight of Self-Regulatory Organizations and the Public Company Accounting Oversight Board:
Routine oversight of self-regulatory organizations and the PCAOB. International Matters: Non-emergency assistance to foreign authorities under bilateral or multilateral arrangements; and participation in multilateral organizations and working groups.

Other Discontinued Functions:
Processing of requests under the Freedom of Information Act absent a compelling need under 5 U.S.C. 552(a)(6)(E)(v)(I); all of the functions of the Equal Employment Opportunity Office; investor outreach and education and monitoring investor toll-free telephone lines and emails from investors; routine human resources functions, including among others, training and development; nonemergency travel; and routine public communications and operation of the Public Reference Room.

So, exactly how many people at the SEC will be working. If you go down lower in the plan of operations: 252 out of 4,149.

Here is the language from the plan itself:

In accordance with Section 124 of OMB Circular No. A-11, the following information is provided:
• Time required to complete shutdown: One half-day
• Number of employees expected to be on-board before implementation of the plan: 4,149,br /> • Number of employees to be retained because they are engaged in law enforcement activities: 147 FTE,br /> • Number of employees to be retained to protect life or property: 105 FTE

Nonetheless, SEC public affairs director John Nester had this statement in regards to the agency's operations in the face of the shutdown

The SEC is staying open because we have carryover funds available. Unlike most other agencies, our appropriations language provides that our funds “remain available until expended.” It is not uncommon for us to have carryover balances at the end of a fiscal year, and we have determined that our carryover balances are sufficient to allow us to remain open for a few weeks during a lapse of appropriations.

What will this mean for mutual fundsters? Two executives gave their insights to MFWire.

Joshua Deringer, chair of Drinker Biddle & Reath Investment Management Practice Group, had this to say.

The SEC's EDGAR filing system is expected to remain open during a government shut-down, so mutual fund firms should be able to continue to make routine filings. However, the SEC would not be processing requests for no-action positions or exemptive orders, so fund groups that are depending on the SEC staff for such relief would be stuck waiting until the government shut-down ends.

Meanwhile, Seward & Kissel counsel Bibb Strench described the situation in this way.

If the SEC has to scale back operations, it may be hit or miss whether the staff member and branch chief assigned to a mutual fund registrant is furloughed. This could delay resolving outstanding prospectus comments and the effective date for new funds and notice and order dates of pending exemptive applications.

Many fund filings are automatically effective upon filing, technically requiring no SEC staff review. Assuming EDGAR remains operational, these filings may not be impacted by the shutdown.

Furloughed SEC employees on official travel will have to return to their office. This means that some mutual fund complexes may get a lucky inspection holiday if OCIE reviewers are on-site.

During the keynote speech to the ICI Tax & Accounting Conference in San Antonio last week, ICI president and chief executive Paul Schott Stevens had worried over the shutdown and what it could mean to the economy, and the industry.

When the shutdown became official, an ICI spokesperson had this comment.

We are extremely disappointed that Congress failed to pass a Continuing Resolution to ensure the uninterrupted funding of the federal government into the new fiscal year. We urge Congress to negotiate and compromise in good faith to enact legislation to end the ‘government shutdown’ with all due haste. Such action is clearly in the best interests of investors, the financial markets, and the U.S. and global economies.