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Life in a shutdown: How New York’s IPO bankers are learning to love limbo


This is an extended version of a story originally published on January 24.

These are quiet times at the US Securities and Exchange Commission. Since the shutdown of the country’s government began on December 22, the SEC, like other government agencies, has been operating on a skeleton staff. Of its roughly 4,400 employees, probably not more than about 300 – most of whom are in critical law enforcement or protection roles – are working.

Contrary to what you might imagine, shutdown is a remarkably quick process at the SEC. Internal guidance is that it should take no more than four hours to close down most of its systems. The day after the government shutdown became effective, staff had to attend their workplaces to start powering down. They are allowed to set up out-of-office voicemails and emails, but can’t do a whole lot more.

They cannot work for free even if they want to. As the SEC reminded its staff in a memo, doing so would violate the Antideficiency Act, that part of legislation that restricts what government agencies are allowed to do in the event of there being no appropriations to fund them – the technical definition of a shutdown.

Anyone who happens to be travelling for work as a shutdown hits must return immediately, and all planned travel is cancelled. Training is stopped; anything scheduled is put on hold. Paid leave is scrapped. Almost all staff are placed on furlough.

If you filed before the shutdown, you need to have launched by February 14 or your numbers will be stale

 – Capital markets head

For all those staff stuck without earnings, it’s a miserable existence. But it also doesn’t add up to a great mix for any companies looking to complete securities offerings. They can still file if they wish: the mighty Edgar – as the SEC’s Electronic Data Gathering Analysis and Retrieval system is known – hums along relentlessly. It’s still absorbing more than 3,000 or so items every day, similar to what it was at around this time of year in 2017 (there was another shutdown in January 2018).

That’s because the Edgar system itself runs under a contract, putting it outside the purview of the shutdown. It’s the same for Edgar’s cousin, the less humanly named IARD, or Investment Adviser Registrations Depository, which also continues to take filings. Likewise, at CRD, the Central Registration Depository of brokers and representatives.

The same does not apply, however, to those living and breathing SEC staff that spend their days delving into Edgar to scrutinize registration documents and other filings.

There are a few folk around to help the system stay up and running. If you need an Edgar access code (which you need in order to submit a filing) or you need to reset your password, you are able to get help. Some other questions deemed sufficiently urgent might also be answered. The few available staff at CorpFin, as the department of Corporation Finance is known to insiders, will answer questions about how to calculate filing fees.

But in short, across the departments of CorpFin, Investment Management, Trading and Markets, and the Office of Compliance Inspections and Examinations, you are mostly unable to get documents processed or receive substantive advice.

The last effectiveness notices showing on the SEC’s website were issued on Wednesday December 26, which was the first business day after the shutdown began. Since then, nothing.

Plumas Bancorp, a California-based independent bank that was filing a shelf registration of up to $40 million, looks to have the distinction of being the last out of the door. Its effectiveness notice was timed at 17:30.

Two routes

Fortunately, the shutdown doesn’t bring all capital markets deals grinding to a halt. Those organizations deemed to be Well Known Seasoned Issuers (WKSIs) don’t have to worry too much about all this. Their registration statements are automatically effective when they file them. The real problem is for the rest, including IPOs.

For the moment, Wall Street’s equity capital markets bankers are counting themselves lucky that the shutdown hasn’t come at a busier time of year.

“It’s not helpful, but typically you only get about 5% of US IPOs in January anyway,” notes one New York-based capital markets head. “But at the same time we are seeing a backlog of issues. When the shutdown ends, there will be a much larger number of companies than usual that will need sign-off.” Clearing the backlog could take until well into March, even if the shutdown was to be resolved in early February, say bankers.

According to Dealogic data, only one US IPO has technically closed in January, a small deal f