US financial regulators start shuttering as federal funding runs out

Washington: U.S. market regulators began the process of furloughing workers on Wednesday as the federal government shut down after Congress failed to extend funding, curtailing key oversight functions, stymieing initial public offerings, and limiting some market and economic data.

The shutdown, which began at midnight as Congress continued to fight over funding legislation, will force the Securities and Exchange Commission to furlough more than 90% of its workforce, retaining only about 393 employees to handle emergency enforcement actions and market surveillance, according to its contingency plan.

The agency, which regulates thousands of listed companies, exchanges, broker-dealers, and funds notified staff on Tuesday evening to prepare for the shutdown, Reuters reported.

The CFTC, which oversees derivatives markets, plans to operate with just 5.7% of its 543 people, who will continue to ensure market oversight and prevent fraud and abuse, the CFTC said in a plan published Tuesday evening.

While markets have generally shrugged off previous short-lived shutdowns, a prolonged one would delay or cancel key economic data releases investors use to assess macroeconomic trends, potentially creating asset price volatility. Wall Street futures and the dollar stumbled on Wednesday, while gold struck a record high.

Routine company SEC filings will continue, but the agency will not be able to process IPOs, potentially dampening a recent IPO market revival.

"A shutdown gives investors a reason to think twice on whether to buy into new deals at a time of heightened political uncertainty," said Samuel Kerr, head of equity capital markets at Mergermarket.

The shutdown has the immediate impact of damaging investor sentiment now and the longer-term effect of clogging the IPO pipe.

With the SEC's Division of Trading and Markets unable to review pending filings, a lengthy shutdown would also delay the expected approvals of numerous crypto exchange-traded fund products in the coming weeks, according to the agency's shutdown plan. Analysts had expected ETFs tied to cryptocurrencies Solana and XRP to debut in early October.

Congresswoman Maxine Waters, the top Democrat on the House Financial Services Committee, highlighted the limitations of markets watchdogs during the shutdown, warning in a statement it is "leaving financial markets and investors at great risk at a time when strong oversight is needed most."

U.S. bank regulators like the Federal Reserve and Federal Deposit Insurance Corporation will continue operating as normal since they are not funded via congressional appropriations. Those agencies issued a statement.

Wednesday reminding banks that they can continue to make loans that typically would require flood insurance coverage, even though the National Flood Insurance Program providing that insurance for new loans has largely shuttered.

The Consumer Financial Protection Bureau, which the Trump administration has already drastically scaled back, is also continuing operations, according to an email sent to staff Tuesday evening.