Money managers who are working through the red tape in getting their ETFs may be delayed as the government shutdown has affected the normal vetting process at the Securities and Exchange Commission.
“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,'” according to the SEC, specifically highlighting regular duties involved with the Securities Act of 1933, Securities Exchange Act of 1934, Investment Advisers Act of 1940 and Investment Company Act of 1940.
The SEC regulates ETFs under the Investment Company Act of 1940 under the same regulatory requirements of mutual funds and unit investment trusts.
Given the sudden shutdown in the government, some are concerned about the approval process for ETFs, especially if the SEC does not reply back before a filed ETF’s deadline. However, Jake Chervinsky who is a lawyer with Kobre & Kim argued on Twitter that “technically, if the SEC fails to approve or deny an ETF by the deadline, the ETF is automatically approved under,” CoinGape reports.
“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,” he added, explaining that the SEC’s freeze order does not impact the ETF approval process.
However, the SEC is not working at full capacity and any filings will likely be delayed. Since the government shutdown, the SEC revealed it had just 285 members of 4,436 employees working as of December 27, 2018, whom are responsible for emergency situations, including investor protection, market integrity and law enforcement.
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