Oct 7 (Reuters) - Companies looking to sidestep

disruptions caused by the U.S. government shutdown to their

initial public offerings can tap a provision that allows them to

press ahead with their listing plans without the need for

regulatory approvals.

Biotech startup MapLight became the first company to file

for a listing under the provision late on Monday.

The U.S. market regulator has halted IPO reviews as the

shutdown enters its second week.

WHAT HAPPENS TO THE SEC DURING A GOVERNMENT SHUTDOWN?

According to its contingency plan, the U.S. Securities and

Exchange Commission has furloughed over 90% of its staff,

retaining around 390 employees to handle critical enforcement

actions and market monitoring.

The agency, which oversees the public markets, will not

process IPO filings during the shutdown, a move analysts say

could stall momentum in a market recovering from a years-long

slump.

However, a provision under federal securities law allows

companies to move ahead with IPOs without SEC review during the

shutdown.

WHAT IS THE 20-DAY REGISTRATION RULE FOR IPOS?

While companies typically wait for the SEC's approval before

launching their IPOs, the rules provide a mechanism that allows

issuers to declare their own registrations "effective."

Issuers are required to set their IPO price 20 days before

the listing, instead of finalizing it the night before, as is

customary.

During the 2018 U.S. government shutdown, which lasted 35

days and was during Donald Trump's first presidential term,

several issuers attempted this option, including biotechnology

firm Gossamer Bio and energy company New Fortress Energy.

It was also a popular option among so-called special purpose

acquisition companies.

SPACs raise money through an IPO to fund future

acquisitions. At the time of listing, they are blank-check

companies with no existing operations or assets. Their valuation

is tied entirely to the cash raised, which allows them to set an

IPO price in advance without deterring investors.

WHAT ARE THE RISKS FOR ISSUERS AND INVESTORS?

While the 20-day rule provides a way for companies to go

public during a shutdown, bypassing the SEC review carries risks

for both issuers and investors.

Without the agency's oversight, registration statements are

more prone to errors or missing disclosures, which could expose

companies to legal action or investor complaints after listing.

Companies may face greater scrutiny from investors, who

often rely on the SEC's review to verify the accuracy and

completeness of disclosures. To reduce that risk, many issuers

work closely with legal and financial advisers to carry out

detailed internal reviews of their filings.

Skipping regulatory reviews can also alienate investors, who

may view the lack of regulatory vetting as a sign of higher risk

or insufficient transparency.

WILL MORE COMPANIES TAKE THIS ROUTE?

Analysts say companies could rely on the 20-day registration

rule if the shutdown looks set to drag on amid the ongoing

deadlock in Congress.

"Biotech companies are prime candidates for this

unconventional but valid way to go public during a shutdown as

their high cash-burn rates often create an urgent need for

funding," said Lukas Muehlbauer, research analyst at IPO

research firm IPOX.

Some firms may also withdraw IPO filings and seek capital in

private markets while waiting for the SEC to resume reviews.