The ETF’s Just Got Interesting, SEC Freezing All Pending Proceedings As a Result of Govt. Shutdown
January 18th, 2019
A release hit SEC’s website on early Jan 16, 2019, notifying the report on ‘Pending Administrative Proceedings. What is more interesting is what happens to filed ETF’s in case SEC does not reply back before the deadline? As per the resource, there are already 160 companies that have filed to get IPO with the SEC and the government closure is screwing it up all.
What Does Freezing Proceedings Means For ETF Approval?
Soon after the release, Jake Chervinsky who is a lawyer with Kobre & Kim clarified on Twitter that ‘SEC is freezing all pending administrative proceedings till further announcement’. He also informed that the commission has already canceled several meetings with government lawyers. Following his announcement on Twitter, a bunch of comments with queries came up. One such Twitter handle ask,
‘whether ETF will be approved automatically after 02/15 if Government still shut down?
The question, was compelling because, on Jan 07, 2019, Jake claimed that the ‘technically ETF will be automatically approved if SEC fails to declare the status by the deadline’. Nevertheless, he also said that ‘this won’t happen in reality’.
Technically, if the SEC fails to approve or deny an ETF by the deadline, the ETF is automatically approved under 15 U.S.C. § 78s(b)(2)(D).
In reality, that won’t happen. The SEC will handle it one way or another: a one-page denial, a request for withdrawal, or something else.
— Jake Chervinsky (@jchervinsky) January 7, 2019
Furthermore, as a response to the latest query, he explained that ‘freeze doesn’t impact the ETF approval process.
No, yesterday’s order freezing administrative proceedings does not impact the ETF approval process. I stand by the following:https://t.co/1UxcZQ5tbn
— Jake Chervinsky (@jchervinsky) January 17, 2019
Moreover, he says that the automatic approval will not happen due to deadline expiration and SEC has already issued an order on January 09, 2019. Nevertheless, the order related to Nasdaq PHLX indicates the rule change which reads as follows;
The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission pursuant to Section 19(b)(2) of the Act,6 designates February 24, 2019, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SRPHLX-2018-72).
Nonetheless, with the ongoing federal government shut down, the SEC has a skeleton crew to take care of the matter. In fact, the resource revealed since the market shut down (on December 27, 2018) SEC has just 285 members out of 4,436 total employees. Additionally, the crew is mainly responsible to address emergency situations (that includes, investor protection, market integrity, and law enforcement)
Accordingly, the Commission stays all pending administrative proceedings initiated by an order instituting proceedings that set the matter down for a hearing before either an administrative law judge or the Commission. The stay is effective immediately and shall remain operative pending further order of the Commission., states announcement.
Freezing All Pending Proceedings- SEC
Earlier, SEC released a draft wherein it mentioned that the ‘SEC’s staff is prohibited to perform ongoing functions’. A statement in an announcement reads that;
The Securities and Exchange Commission has experienced a lapse in appropriations. Absent an appropriation, the staff of the Commission is prohibited from performing the ongoing, regular functions of government except in very limited circumstances, including “emergencies involving the safety of human life or the protection of property.”