The U.S. is expected to hit the debt ceiling this Thursday, and while discussions are ongoing, no resolution is in sight as proposals by Susan Collins were rejected. The debt ceiling and budget shutdown are the only games in town now, and will continue to be the primary focus of Congress until the issues are resolved.

This Update contains:

  • SBIA’s efforts to modernize regulations involving Business Development Companies (BDCs);
  • The new SEC website on market analytics (, which is worth checking out;
  • An interesting report by ISDA on credit default swap (CDS) activity from 2011-2013A;
  • Senate hearings on the debt ceiling and the impact on a default by the U.S. government; and
  • A Third Way report on the Treasury bill market.


While focusing his efforts ending the government shutdown and increasing the debt ceiling, the President found the time to nominate Janet Yellen as Chair of the Board of Governors of the Federal Reserve System. Yellen is very likely to be confirmed by the Senate, although Senator Rand Paul (R-KY) has indicated that he may try to filibuster the nomination.

The Treasury Department’s Office of Financial Research released its report on Asset Management and Financial Stability, describing potential systemic risk arising from the asset management industry.  As noted below, the Securities and Exchange Commission has invited the public to comment on the report. A summary of the OFR’s report is here.

The 113th Congress

The Senate

Senate Banking Committee

Impact of a Default on Financial Stability and Economic Growth – Last week the Committee held a hearing titled “Impact of a Default on Financial Stability and Economic Growth.”  Witnesses were:

A video of the hearing is here.

The SBC also held a hearing on Housing Finance Reform: Essential Elements of the Multifamily Housing Finance System.

Senate Finance Committee

Hearing on the Debt Limit – The SFC held a hearing on the debt ceiling with the Secretary of the Treasury, Jacob Lew. Secretary Lew’s written testimony is here. The written statement of Chairman Baucus is here and Ranking Member Orrin Hatch is here. A video of the hearing is here.

Joint Economic Committee

Hearing on The Way Forward - The JEC held a hearing entitled “The Way Forward Toward Fiscal Sustainability and Economic Growth.”  The two witnesses were:

A video of the hearing is here.

House of Representatives

Slow week for House committees, as most previously scheduled hearings and markups were canceled.

House Small Business Committee

Last week the HSBC held two hearings, one on the health law’s definition of “full time employee” and another on contract bundling for small businesses.

Securities and Exchange Commission

Mary Jo White Speech on Enforcement Issues – “Broken Window” Theory

SEC Chairwoman Mary Jo White gave a speech at the Securities Enforcement Forum where she said that she hoped inside and outside counsel consider that the SEC is “everywhere.”  She also said that the agency will adopt a “broken window” approach to enforcement because “minor violations that are overlooked or ignored can feed bigger ones, and, perhaps more importantly, can foster a culture where laws are increasingly treated as toothless guidelines. And so, I believe it is important to  pursue even the smallest infractions.” This is another example of the SEC’s increased aggressiveness of enforcement matters.

Launch of Market Structure Data and Analysis Website

The SEC unveiled a new website,, which allows the public to access new market metrics and empirical research and analyses. The website will serve as a central location for the SEC to publicly share evolving data, research, and analysis. Reports released this week include ones on Alternative Trading Systems, Market Fragmentation and The Speed of the

Equity Markets

Request for Feedback on OFR Study on Asset Management Industry

The SEC has opened a website for the public to provide feedback on the Office of Financial Research’s report on the asset management industry.  Members of the public may submit comments here. Comments are due on November 1.

Investor Advisory Committee Meeting

The SEC announced the Investor Advisory Committee meeting scheduled for Thursday, October 10th has been postponed.  The IAC did release its draft recommendations regarding fiduciary duties for broker-dealers, which states that “personalized investment advice to retail customers should be governed by a fiduciary duty, regardless of whether that advice is provided by an investment adviser or a broker-dealer.”

Annual Government-Business Forum on Small Business Capital Formation

The SEC will hold its annual Government-Business Forum on Small Business Capital Formation on November 21 in DC. The forum will include implementation of the JOBS Act and other issues. The forum is open to the public, and you can register for it here.

Small Business Investor Alliance (SBIA)

Modernization of Regulations Governing Business Development Companies (BDCs)

The Small Business Investor Alliance announced it had secured 24 signatories to the letter it submitted to the SEC requesting that current regulations imposed on Business Development Companies (BDCs) be modernized. The letter requested that federal regulations be revised to allow BDCs to take numerous actions available to other public companies, including:

  • incorporating already-filed information by reference into current registration statements;
  • filing automatic shelf registration statements as a “Well-Known Seasoned Issuer;”
  • communicating with investors more freely during the preparation and filing periods for registration statements;
  • Providing broker-dealers more flexibility in disseminating research on BDCs;
  • Providing a safe harbor for BDCs to disseminate additional information during an offering;
  • Filing a shelf registration statement for continuous or delayed offerings; and
  • Allowing preferred stock to be treated as equity, not debt.

Managed Fund Association (MFA)

Comment Letter to U.S. Trustee on Chapter 11 Periodic Reports

The MFA submitted a letter to the US Trustee Program (USTP) on rules for Chapter 11 periodic reports. In the letter, MFA urged the USTP to promulgate rules as directed by the Bankruptcy Abuse  Prevention and Consumer Protection Act of 2005 to require debtors in possession and trustees to file periodic reports in Chapter 11 cases. MFA believes this will enhance the effectiveness of the bankruptcy process.


ISDA Report on Credit Default Swap (CDS) Market

The International Swaps and Derivatives Association (ISDA) released research notes on the credit default swap (CDS) market, noting that while the aggregate level of CDS notional outstanding has decreased over the past several years, much of this decrease in notional outstanding is due to portfolio compression.  As noted in the report, portfolio compression has eliminated $85.7 trillion of CDS notional through year-end 2012. Market risk transaction activity was $15.2 trillion in 2011, $15.0 trillion in 2012 and $17.3 trillion in 2013, a 15% increase.

Third Way Report on Impacts of Default

Third Way released a report describing the domino effects if the U.S. were to default on its debt. The report notes that the effects would include (i) an increase in Treasury bond rates; (ii) the stock market would take a hit, (iii) mortgage rates would rise, (iv) small business and consumer credit would tighten and (v) the U.S. Dollar could lose its status as the world’s reserve currency.

Redwood Capital Report on Human Capital Management (HCM) Software and Services  Redwood Capital released a report on M&A, private financing activity as well as valuation trends in the Human Capital Management (HCM) software and services space.  Important industry trends of note include: (i) acquisition activity by large ERP players; (ii) moves by HCM companies to position themselves to address opportunities presented by the Affordable Care Act; and (iii) the emergence of rapidly growing SaaS HCM companies completing successful IPOs.

2013 Long Term Budget Outlook

The Congressional Budget Office (CBO) released its 2013 Long Term Budget Outlook. The report finds that under current law, the federal debt would grow to 100 percent of GDP by 2038, and would be on an upward path relative to the size of the economy that is not sustainable.  A summary of the report is here. Doug Elmendorf’s slide deck is here.