The US Securities and Exchange Commission on Tuesday filed a status report with the U.S. Court of Appeals for the District of Columbia Circuit, regarding its rules requiring the board of directors of most mutual funds to have an independent chair and 75 percent independent membership.
The court in April concluded that the Commission had violated the Administrative Procedure Act by not affording an opportunity for public comment on certain data that it had used to estimate the costs of complying with the rules.
At that time, the court determined it would be appropriate to vacate the rules, but delayed issuing its mandate and ordered the Commission to file a status report with the court within ninety days. The court had previously stayed the effectiveness of the rules.
In the status report filed on Tuesday, 23 days ahead of the court’s deadline, the Commission said that it is soliciting comment on costs as well as “any issue related to the underlying purpose of the independence requirements, which is the protection of funds and fund shareholders”.
The solicitation is contained in a formal Request for Additional Comment approved unanimously by the five Commissioners, to be published in the Federal Register.
“The Commission takes seriously our obligation in rulemaking to solicit and fully consider the public’s views," explained SEC Chairman Christopher Cox, continuing:
“I have every confidence that the process we are announcing today will result in mutual fund governance that both protects investors and promotes their interests.”
In accordance with the Investment Company Act, the Commission is also specifically seeking comment on whether the rules will promote efficiency, competition, and capital formation. In an earlier ruling, the court found that the Commission had failed to comply with this provision, and that the failure violated the Administrative Procedure Act.
The Commission’s mutual fund governance rules were proposed in January 2004, as part of a larger package of reforms to address abuses in the mutual fund industry.
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