Amid the ongoing U.S. government shutdown, companies looking to proceed with initial public offerings (IPOs) without regulatory delays are turning to a provision that allows issuers to declare their IPO registration “effective” without waiting for the Securities and Exchange Commission’s (SEC) approval.

SEC Operations Halted During Shutdown

The SEC, responsible for overseeing public markets, has furloughed over 90% of its staff, retaining only around 390 employees to handle critical enforcement and market monitoring. As a result, the agency is not processing IPO filings, which analysts warn could slow momentum in a market already recovering from a prolonged slump.

The 20-Day Registration Rule Explained

Typically, companies wait for SEC approval before launching an IPO. However, the 20-day registration rule allows issuers to make their registration effective independently. Under this rule, companies must set their IPO price 20 days before the listing, rather than finalizing it the night before, as is customary.

During the 2018 government shutdown, several issuers, including biotech firm Gossamer Bio and energy company New Fortress Energy, used this provision to go public. The rule has also been popular with special purpose acquisition companies (SPACs), which raise money through IPOs to fund future acquisitions and have no existing operations or assets at the time of listing.

Risks for Issuers and Investors

While the 20-day rule enables companies to bypass SEC delays, it carries significant risks:

• Potential errors or missing disclosures in registration statements, exposing companies to legal action or investor complaints.
• Investor skepticism due to the lack of SEC oversight, which may affect valuations and market reception.
• Greater reliance on internal reviews, with companies working closely with legal and financial advisers to mitigate errors.

Troy Hooper, co-head of equity capital markets at Mergermarket, noted: “Bypassing regulatory review heightens the risk of overlooked disclosures or filing errors, leaving both issuers and investors more vulnerable to legal trouble and unpleasant surprises after launch.”

Who Might Use the Rule?

Analysts suggest that biotech companies, in particular, are likely to adopt this approach, given their urgent funding needs due to high cash-burn rates. Some companies may also withdraw IPO filings temporarily and raise capital in private markets while waiting for the SEC to resume normal operations.

The provision offers a pragmatic, though riskier, path for companies to continue fundraising amid prolonged government deadlocks, balancing the need for capital with the challenges of bypassing regulatory review.