A partial shutdown of the US government appears all but certain as Congress remains deadlocked over funding legislation, with prediction markets placing the odds at about 80% as of midday Tuesday.
The potential shutdown carries immediate implications for regulatory oversight, capital markets activity, tax administration, and the flow of economic data.
The Securities and Exchange Commission, which oversees equity capital markets and initial public offerings, has outlined a contingency plan that would see most of its functions suspended if lawmakers fail to reach a deal by midnight.
As reported by Bloomberg, the plan would leave only about 400 of the agency’s more than 4,000 employees on duty, focusing on market oversight and fraud detection rather than reviewing IPO paperwork. The SEC’s Edgar corporate filing system will stay operational, but new IPO approvals will largely be on hold.
Read more: Wall Street eyes IPO trackers as newly listed stocks top S&P 500
Companies that have completed their filings and received effective status from the SEC by 5:30 p.m. Tuesday in Washington can proceed, but others will have to wait until the government reopens.
“Teams would have planned for this and would look to go effective before the government shuts down, and then price later,” Michael Kaplan, a partner at Davis Polk & Wardwell – which is advising on an upcoming IPO – told Bloomberg. “Unfortunately if you’re still on file and haven’t cleared comments from the SEC, you’re likely stuck.”
Some companies may attempt workarounds, such as filing paperwork without a delaying amendment, which would allow a registration statement to become effective automatically after 20 days. But according to legal experts, such measures are rarely used except during prolonged shutdowns.
The current pipeline includes firms like Fermi Inc. and Neptune Insurance Holdings Inc., which are expected to price their offerings before the deadline. Others, such as Alliance Laundry Holdings Inc. and Phoenix Education Partners Inc., may face delays if their filings are not declared effective in time.
A separate report by MarketWatch says the Internal Revenue Service plans to remain fully staffed and operational for up to five business days after a shutdown begins, drawing on extra funding allocated during the Biden administration.
This means tax return processing, phone assistance, and audits will continue through at least October 7. Taxpayers who filed for an extension have until October 15 to submit returns without penalty, but the IRS’s contingency plan does not specify what happens if the shutdown extends beyond the initial period.
Most essential federal services – including Social Security, Medicaid, and Medicare payments – will continue. However, benefit verification and card issuance are expected to pause until the shutdown ends. The US Postal Service, which is self-funded, will operate as usual, and unemployment benefits are expected to continue since they are administered by states.
A key difference from past shutdowns is the White House’s indication that agencies could pursue layoffs for unfunded programs, though union officials have sought to reassure SEC staff that mass layoffs are not anticipated at this time. “There is no reason at present for SEC employees to be anxious that a shutdown at the SEC would be different than past shutdowns have been,” said Greg Gilman, head of the SEC’s union.
The shutdown is also expected to delay the release of the monthly jobs report, a key data point for investors and the Federal Reserve. According to the Department of Labor’s contingency plan, economic data will not be released as scheduled if the government closes.
History suggests that markets tend to take government shutdowns in stride. There have been 20 shutdowns since 1976, lasting an average of eight days.
Monica Guerra, head of US policy at Morgan Stanley Wealth Management, noted that “shutdowns are common, and once resolved, agency operating budgets and employees are made whole, blunting any broader market and economic impacts.
"The S&P 500 Index has risen 4.4%, on average, during shutdowns – indicating that other macroeconomic factors play a larger role in market outcomes," Guerra said in a note Tuesday.
IPO activity slowed sharply during the record-setting shutdown of 2018-2019, with January 2019's $4.3 billion in IPOs and share sales representing the lowest monthly total in at least six years, a Bloomberg data analysis showed.
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