With shutdown near, SEC set to halt adviser registration

After midnight, they're 'gonna let it all shut down (Photo: Architect of the Capitol)

If the government closes, the SEC will send most of its employees home. Another casualty: adviser registrations, which will be halted.

By midnight tonight, the Securities and Exchange Commission will stop registering investment advisers and furlough thousands of staff — if House and Senate negotiators fail to reach an agreement on a federal budget for the six months remaining in fiscal 2011.

If the impasse is not broken, most government operations will cease as of 12:00 a.m. EST. In a contingency plan posted on the agency’s website, the SEC said that only 332 of its 3,969 employees will be deemed essential and kept on the job during a government shutdown.

“The Office of Compliance Inspections and Examinations will be unable to approve applications for registration by investment advisers, nor can the Division of Investment Management provide interpretive advice regarding the Advisers Act, rules or forms, or consider applications for exemptive relief under the Advisers Act,” the agency said in a statement.

The Investment Adviser Registration Depository will remain functional and accept Form ADV and Form ADV-E filings, according to the shutdown guidance.

The agency said that 174 employees who are “engaged in law enforcement activities” would continue working during a shutdown, as would 158 staff members who “protect life or property.”

The SEC will handle “emergency enforcement matters” and monitor the tips, complaints and referrals system. It also will continue to perform market surveillance and monitor market technology operations, money funds and “any broker-dealers reportedas being in financial distress.”

If the government closes over the weekend, all employees will report Monday for a half day to conduct shutdown activities.

KICK THE CAN?
Most of Washington is preparing to power down today as House, Senate and White House negotiators try to reach an eleventh-hour agreement that would fund the government through Sept. 30. Federal agencies have been operating at fiscal 2010 levels since October, when Congress originally failed to approve the fiscal 2011 budget.

Since then, Congress has passed several continuing resolutions, the latest of which expires at midnight tonight. The budget battle has been raging in Washington for weeks.

Republicans, spurred by the Tea Party constituency that helped the party gain control of the House, have made slashing the federal budget its top priority. The House approved a bill in February that would fund the government through September and cut $61 billion from current spending.

Democrats rejected that approach as too Draconian and are offering to reduce the current budget by $33 billion. The two sides might be able to agree to about $40 billion in cuts, according to published reports.

But more than the $7 billion in funding separates the parties. Democrats are resisting Republican efforts to attach so-called “riders” to a budget bill that would affect non-budget environmental and social policies.

On Thursday, the House passed an alternative to a broader budget agreement that would fund the government through next Friday while cutting the current budget by $12 billion and fully funding military operations. President Barack Obama threatened to veto the measure.

AGENDA ON THE AGENDA
In a speech on the Senate floor this morning, Senate Majority Leader Harry Reid, D-Nev., who is involved in the budget negotiations with Speaker of the House John Boehner, R-Ohio, said that the two sides could come to a budget settlement.

“But now the Tea Party is trying to sneak through its extreme social agenda — issues that have nothing to do with funding the government,” Mr. Reid said in prepared remarks.

Mr. Reid’s counterpart, Senate Minority Leader Mitch McConnell, R-Ky., is optimistic that a government shutdown can be avoided.

“A resolution is within reach,” Mr. McConnell said. “The contours of a final agreement are coming into focus. There is virtually nothing in the troop-funding bill Republicans in the House passed yesterday that won’t be included in a final package.”

While the political wrangling continued in the capital, SEC Chairman Mary Schapiro told an audience in Dallas on Friday that the SEC is not the problem when it comes to the burgeoning federal deficit. In a speech to the Society of American Business Editors and Writers Inc., she said that the agency collected $1.5 billion in fees last year, exceeding its $1.1 billion budget appropriated by Congress.

“And starting next year, fees, not tax dollars, will cover our budget, making us deficit-neutral,” Ms. Schapiro said in prepared remarks. “Yet tomorrow, unlike almost every other financial regulator, we may be shut down.”