The Securities and Exchange Commission filed a status report with the U.S. Court of Appeals, saying that it will again ask for public comment on its independence proposal for the boards of most mutual funds.
The rules would require the boards of directors of mutual funds to have an independent chairperson, and for three-quarters of board members to have no direct ties to the fund manager.
In April, the court said that the SEC had violated the Administrative Procedure Act by not allowing public comment on the data used to estimate the costs of compliance. And in an earlier ruling, the court questioned whether the SEC had sought comment on whether the rules will "promote efficiency, competition and capital formation."
In a unanimous vote, the five-member commission said that it would solicit comment on the costs of the rule, as well as "any issue related to the underlying purpose of the independence requirements, which is the protection of funds and fund shareholders."
Separately, SEC Chairman Christopher Cox has asked the agency's general counsel to conduct a review of the process for complying with the National Securities Markets Improvement Act of 1996 and other laws that require an economic analysis of rule proposals.
The SEC originally adopted the rule in the summer of 2004, when the $7 trillion mutual fund industry was embroiled in a series of late-trading scandals. Shortly thereafter, the court ruled that the regulator did have the authority to adopt the rule, but first made the argument that the commission hadn't truly considered the costs of such a rule. Under that mandate, it was estimated that roughly 3,700 funds would have to seek new chairmen.
The proposed rules are on the SEC's Web site, at www.sec.gov/rules/proposed/2006/ic-27395.pdf. Comments are due by Aug. 21.
Previously on WebCPA:
SEC Not Yet Burying Mutual Fund Rule (April 27, 2006)
SEC's Independence Rules Overturned Again (April 10, 2006)
Chamber to Fight SEC Again on Mutual Fund Boards (July 11, 2005)
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