Congress has less than twenty-four hours to avert a government shutdown, as the federal government’s funding expires at midnight. There is still a lot of uncertainty as to how this will play out, especially with the debt ceiling lurking around the corner.

This Update contains:

  • Comments by ACG, PEGCC, IAA and others on the SEC’s Proposed Rule on general solicitations;
  • Chairman Gensler’s update on timing for the CFTC’s final margin rule;
  • A change in policy by the CFTC’s Division of Enforcement;
  • Treasury Secretary Lew’s letter to Congress stating when the government will hit the debt ceiling;
  • Summaries of relevant congressional markups and hearings; and
  • Reports issued by Redwood Capital and SIFMA. 

The President

While Congress debated how to handle the impending shutdown, the President spoke before the United Nations General Assembly and spent time defending the Affordable Care Act, which individuals can begin signing up for on Tuesday, October 1.

The Treasury Department released a number of materials in connection with the impending shutdown and the debt limit, which the U.S. will reach in mid-October. It released a summary of quotes from business leaders on the consequences of a default; Secretary Lew wrote to Congress, saying the extraordinary measures being employed to avoid hitting the debt ceiling will be exhausted in the middle of October –with a best estimate of October 17 – and Treasury laid out its contingency plan in case of a shutdown.

The 113th Congress

The Senate

Putting aside the CR, sixty Senators urged the Secretary of the Treasury Jack Lew and U.S. Trade Representative Michael Froman to address foreign currency manipulation in the Trans-Pacific Partnership and future free trade agreements.

Joint Economic Committee

The Senate/House Joint Economic Committee will hold a hearing on Wednesday titled “The Economic Outlook.” The sole witness will be Jason Furman, Chairman of the Council of Economic Advisers.

Senate Banking Committee

Last week the SBC held hearings on Reauthorizing the Terrorism Risk Insurance Act (TRIA) and on Improving Market Access in Financial Services in India.

This week the Committee holds two hearings, one on Housing Finance Reform: Fundamentals of a Functioning Private Label Mortgage Backed Securities Market and another on Rebuilding American Manufacturing.

Not much is happening here that is directly relevant to the regulations of private funds, and it is unlikely that anything major will happen for at least the next several weeks.

House of Representatives

House Financial Services Committee

The Committee released its October Hearing Schedule. Note that on Wednesday, October 9, the Committee will be holding a hearing on legislation to further reduce impediments to capital formation.

This week the HFSC holds a hearing titled “Examining Legislative Proposals to Reform the Consumer Financial Protection Bureau.” Witnesses are:

  • Jess Sharp, Executive Director, U.S. Chamber Center for Capital Markets Competitiveness
  • Robert Tissue, SVP, Summit Financial, on behalf of the West Virginia Bankers Association
  • David Clendaniel, CEO, Dover Federal Credit Union, on behalf of the NAFCU
  • Mr. Damon Silvers, Director of Policy and Special Counsel, AFL-CIO

Written testimony is not yet available. The Committee Memorandum is here.

Chairman Jeb Hensarling (R-TX) and Capital Market Subcommittee Chairman Scott Garrett (R-NJ) still have not received a response to their letter to SEC Chairwoman Mary Jo White asking her a series of questions regarding registration requirements for advisers to private equity funds.

House Small Business Committee

The Challenge of Retirement Savings –On Wednesday, October 2, the HSBC holds a hearing on The Challenge of Retirement Savings for Small Employers. Witnesses are:

  • Catherine Collison, President, Transamerica Center for Retirement Studies
  • Paula A. Calimafde, on behalf of the Small Business Council of America
  • Roy Messick, III, CPA, QPA, TPP Retirement Plan Specialists, LLC
  • Ray Rucksdashel, CFO, Quest-Tec Solutions, Inc.

House Agriculture Committee

Hearing on CFTC: Perspectives on Customer Protections –On Wednesday, as part of the series of hearings on CFTC reauthorization, the HAC holds a hearing on CFTC: Perspectives on Consumer Protections. Witnesses have not yet been announced.

Securities and Exchange Commission

Re-Opening of Comment Period on Proposed Rule re: General Solicitations

Late last week the SEC announced it would be re-opening the comment period for the proposed rule imposing new restrictions on general solicitations by issuers, including private funds, for another 30 days. The SEC said this was being done because of the large amount of public interest, in order to ensure the public has had sufficient time to submit comments.

Numerous groups have already submitted comments on the proposed rule, including the Association for Corporate Growth, Private Equity Growth Capital Council, Investment Advisor Association and the Managed Funds Association.

Mary Jo White Speech on Enforcement Issues – “Hard Look” at Charging Individuals

SEC Chairwoman Mary Jo White gave a speech at the Council of Institutional Investors fall conference, where she laid out the Commission’s recent activities and top issues (JOBS Act, money market funds, municipal advisors, etc.) and discussed the SEC’s key enforcement priorities. In the speech, she said that she had told SEC staff to seriously consider charging individuals where the evidence indicates it is warranted.

Investor Advisory Committee Meeting

The SEC announced that there will be an Investor Advisory Committee meeting on Thursday, October 10 from 10:00 a.m. to 4:00 p.m. An agenda has not yet been released.

Current SEC Priorities Regarding Hedge Fund Managers

Norm Champ, Director of the SEC’s Division of Investment Management, gave a speech titled “Current SEC Priorities Regarding Hedge Fund Managers.” The speech covered a variety of issues the SEC is focused on, including:

  • General Solicitation and BadActors;
  • Lifting the Ban on General Solicitation;
  • Insider Trading; and
  • General Compliance.

Guidance on Reporting Financial Advice to Older Adults

The SEC and six other federal regulators issued guidance on reporting financial abuse of older adults. The guidance notes several possible signs of financial abuse of older adults, including erratic or unusual banking transactions and certain interactions with older adults or caregivers.

Commodity Futures Trading Commission

Timing of Margin Rule

The CFTC Chairman Gary Gensler delivered remarks at the International Group of Treasury Associations and the U.S. Chamber of Commerce. After his remarks, during Q&A, Mr. Gensler said that he expected the agency to reopen the rule for comment before the end of the year, and hoped to finalize the rule by the summer of 2014.

Change in Enforcement Policy

CFTC Commissioner Scott O’Malia released a written statement where he said the agency’s Division of Enforcement has made a policy change that will provide commissioners with greater input on investigations. The policy change involves changing from an “absent objection” process to instead seeking Commission approval of extensions of omnibus orders.

Release of Shutdown Plan

In advance of a potential government shutdown, the CFTC released its Shutdown Plan in the event that funding expires on September 30. In case you are interested, while the majority (95.9%) of the CFTC’s staff would be furloughed, 28 of the CFTC’s 680 employees would still be required to work, and they would be able to ensure “a bare minimum level of oversight and surveillance of the futures markets, clearing operations, and intermediaries is maintained.”However, the vast bulk of the CFTC's oversight and surveillance functions will cease during a lapse of appropriations.

Closing of Investigation Concerning the Silver Markets

The Division of Enforcement announced that it has closed the investigation that was publicly confirmed in September 2008 concerning silver markets, and is not recommending charges to the Commission in that investigation. The investigation was based on complaints that the silver futures contracts traded on the Commodity Exchange, Inc. (COMEX) were being manipulated. The Division of Enforcement’s investigation utilized more than 7,000 enforcement staff hours.

Financial Stability Oversight Council

Designation of Prudential Financial, Inc.

Earlier in the month by a 7-2 vote, the Financial Stability Oversight Council (FSOC) designated Prudential Financial as systemically important. Prudential had previously contested the designation. In a written press release, Prudential stated that it is reviewing the rationale for the decision and is considering a response.

Congressional Budget Office

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.

Federal Debt and the Statutory Limit

The Congressional Budget Office released its September 2013 report on Federal Debt and the Statutory Limit. Given Treasury has estimated that its ability to borrow under its extraordinary measures will be exhausted no later than October 17, in the report CBO projects Treasurywill exhaust all borrowing authority,well as its cash balance, between October 22 and the end of the month.


Redwood Capital Report

Redwood Capital released a report on investment and acquisition activity by private equity firms in the IT and cloud services sectors. The report notes that while historically there has not been a great deal of PE investment in the space, a number of changes – including a shift to recurring services, outsourcing of the IT function, and the need for solutions providers to offer broader capabilities – are making the area of IT services an attractive space for private equity.

SIFMA Pennsylvania + Wall Blog

SIFMA posted an article on its Pennsylvania + Wall blog against H.R. 2998, the Investor Choice Act of 2013, which would end mandatory arbitration by banning broker-dealers and investment advisers from specifying in their agreements with clients how disputes should be resolved.

Dallas Federal Reserve Paper on Cost of 2008 Financial Crisis

The Dallas Federal Reserve published an economic letter this week, finding that the bottom-line estimate of the cost of the financial crisis, assuming output eventually returns to its pre-crisis trend path, is an output loss of $6 trillion to $14 trillion. This is a follow-up to a staff paper the authors released in July titled “How Bad Was It? The Costs and Consequences of the 2007-09 Financial Crisis.”

Chamber of Commerce Reports

The Chamber of Commerce noted the five-year anniversary of the financial crisis by sending a letter to Congress highlighting its Fix Add Replace (FAR) Agenda and an SEC Reform Study.