On Jan. 25, United States () President ended the partial government shutdown, albeit temporarily. As a result of the funding package he on Friday, the government will be open for three weeks.
While the future still seems unclear for U.S. government facilities, which are now returning to work after the 35-day standoff between and the Senate, it is time to reassess how regulatory agencies like the Securities and Exchange Commission () and Commodity Futures Commission () were affected, and what that means for the crypto market.
Trump failed to get money for his border wall, shut down the U.S. government
The shutdown was triggered by ‘s demand for $5.7 billion in federal funds for a U.S.- border wall, which he throughout his 2016 presidential campaign, making it one of his signature promises.
Initially, claimed he would recoup the costs of the wall from Mexico, but President Enrique Pena Nieto to fund the construction. As a result, in January 2017, the administration Executive Order 13767, which formally directed the U.S. government to build the wall using existing federal funding.
In December 2018, the Senate, which is controlled by the Republican party, unanimously passed an appropriations bill without wall funding. After that, that he wouldn’t sign any funding bill that didn’t include money for the fortified border. According to , ’s decision could have been influenced by conservative and media outlets, which purportedly pressured the president to keep his longtime promise.
The House republicans then a stopgap bill with funding for the wall by a 217-185 vote, but it also failed to find enough support in the Senate.
During what seems to be the highlight of the dispute preceding the shutdown, on Dec. 11, met with Speaker-designate Nancy Pelosi and Senate Minority Leader Chuck Schumer and asked them to support an appropriation of $5.7 billion for funding of the border wall. After they rejected his proposal, said, “I am proud to shut down the government for border security. […] I will be the one to shut it down. I’m not going to blame you for it. […] I will take the mantle. I will be the one to shut it down.” Ten days later, took to Twitter .
As a result, on Dec. 22, the shutdown , as funding for numerous agencies, homeland security, law enforcement, tax collection and transportation expired. were furloughed or were required to work without pay. The shutdown reportedly . According to an , by Jan.11, the shutdown had cost the U.S. economy $3.6 billion. Given that it lasted 14 more days and , the overall effect could be even more significant.
The SEC was largely paralyzed, delaying the IPO applications and possibly triggering insider trading
On Dec. 27, the that it will operate with reduced staff during the shutdown.
“Effective Thursday, Dec. 27 and until further notice, the agency will have a very limited number of staff members available,” the regulator announced via its website. The added that it will keep essential staff to respond to emergency situations involving market integrity and investor protection.
Additionally, the regulator maintained operations for its offices of enforcement and investor complaints, as well as its Electronic Data Gathering, Analysis and Retrieval (EDGAR) system for company disclosures.
According to data from intelligence firm Enigma Technologies by Quartz, the was operating at 5.8 percent of its normal capacity during the shutdown, with the enforcement division at 8 percent.
In a comment for Quartz, John Stark, the former chief of the ’s Office of Internet Enforcement, called the numbers “shocking” and predicted an increase in insider during the shutdown:
“There will absolutely be people on Wall Street, and off of Wall Street, who believe they may be able to get away with something because the cop is simply not on the beat.”
Moreover, Stark stressed that the was underemployed even before the shutdown, which means that the lapse could have made it even more complicated for the watchdog to keep up with the market. It could take months to deal with the backlog, he argued, considering that enforcement staff were allegedly not even permitted to read their emails. “Even if they wanted to work from home and get work done, it’s unlawful for them to do so,” the former employee added.
Another former employee, its ex-accountant/examiner Tim Dunn, told Quartz that the most “essential” staff who remained on the job were of senior level. Therefore, they were unlikely to review cases, he argued.
“How far away are they from hands-on working these important cases, and are they working them? […] Somebody who is in senior management is probably six, eight, ten years removed from actually having done that work.”
The halt could have encouraged wrongdoing among market participants, according to James Cox, a securities law professor at Duke University, who was also interviewed by Quartz. Cox highlighted insider as one of primary examples of such offense, claiming that it accounts for 10 percent of all enforcement cases. He argued that the was forced to handpick cases during the shutdown due to the lack of employees at work, which could have been abused by the market:
“That sends out a message to people on Wall Street — ‘Hey, maybe there’s less chance of me being caught right now,’ and that has all kinds of perverse incentives.”
On Jan. 27, 2019, after the shutdown was temporarily ended, the that explains how the staff will tackle the backlog of transactional and disclosure filings, as well as shareholder proposals that piled up during the shutdown.
According to the guidance, the staff will prioritize filings, submissions and requests for staff action, including shareholder proposals, in the order they were received. The papers also cautions that the response times may be longer than usual.
The initial public offerings () market has taken a hit as a result of the shutdown, according to the transaction guidance. Specifically, the applications of companies seeking to go public in the first quarter of 2019 have been delayed. The list of such firms include ’s hardware manufacturer, Canaan, who after its by the Hong Kong Stock Exchange (HKEX).
The CFTC’s action was halted as well, pushing back its review of ETH and digital assets platforms’ applications
The , the agency that oversees the derivatives market and in , was largely shutdown as well. On Dec. 18, the agency a memo announcing that it will “severely curtail” its operations. Only 9.1 percent of the CFTC’s staff remained at work during the shutdown, as per the statement.
Nevertheless, the regulator sought stay of actions against binary options and virtual currency fraudsters. On Dec. 26, it reportedly respective motions with federal courts.
One example of the cases that the CFTC wanted to keep investigating allegedly a number of companies that were accused of having solicited potential to buy illegal off-exchange binary options via companies such as Blue Bit Banc. The defendants reportedly aimed to cover up their misdemeanor by asking to transfer their binary options account balances into the ATM Coin (ATMC) .
The shutdown could have also indefinitely prolonged the CFTC’s studies in regard to ().
On Dec. 11, the watchdog public comments and guidance on the to better understand the differences and similarities between ETH and the seminal (). According to a Roll Coll , while the comment submission period won’t expire until mid-February, there was no CFTC staff in office to begin undertaking the review.
Moreover, crypto exchange ErisX, which $27.5 million from major investors in December, was also affected by the shutdown. The platform requires approval from the CFTC, as it aims to accommodate the futures market, and hence its application was likely postponed.
Similarly, digital assets platform , overseen by the Intercontinental Exchange (ICE), is likely to face another delay because of the major lapse. According to the company’s , “following consultation with the Commodity Futures Commission, ICE Futures U.S. Inc. expects to provide an updated launch timeline in early 2019 for the , clearing and warehousing” of Bakkt’s futures contract.
On Jan. 28, CFTC Chairman J. Christopher Giancarlo the agency’s return to operations. In the statement, however, he stressed that the CFTC “continued to perform essential market-critical functions throughout the shutdown.”
“The agency was well prepared, utilizing its Lapse in Appropriations action plan adopted a year ago. A small team of agency staff continued to monitor derivatives markets and ensured that essential enforcement activities were carried out.”
The shutdown might comeback, dealing even more damage
Despite all the consequences, has reiterated his demands for the U.S.-Mexico wall funds, which is why he ended the shutdown on temporary terms. The Financial Times him as saying:
“If we don’t get a fair deal from Congress, the government will either shut down on February 15 again, or I will use the power afforded to me under the laws and the constitution of the United States to address this emergency. We will have great security.”
Therefore, the impact on the crypto industry, namely its progress on , could be postponed even further. Given that various applications by the , and the regulator has to deal with major backlog caused by the shutdown on top of other tasks, crypto could have been pushed back to a significant extent.
Published at Tue, 29 Jan 2019 15:13:27 +0000
