SEC Complies with Court Order on Mutual Fund Governance Rule
FOR IMMEDIATE RELEASE
Washington, D.C., June 13, 2006 The Securities and Exchange Commission today 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 the Commission had violated the Administrative Procedure Act by not affording an opportunity for public comment on certain data the Commission 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 previously had stayed the effectiveness of the rules.
In its status report filed today, 23 days ahead of the court’s deadline, the Commission said 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," said SEC Chairman Christopher Cox. “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 accord with section 2(c) of the Investment Company Act, the Commission also specifically is 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.
Separately, Chairman Cox has asked the Commission’s General Counsel to conduct a top-to-bottom review of the Commission’s process for complying with the National Securities Markets Improvement Act of 1996 and other laws that require an economic analysis of rule proposals. The purpose of the review is to ensure the Commission takes full advantage of the significant expertise of its professional staff—both in the operating divisions and in the Office of Economic Analysis—when preparing the legally mandated analysis of economic impact that must accompany proposed regulations.
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.
The public may comment on the rules for 60 days following publication of the Commission’s Request for Additional Comment in the Federal Register. The Request for Additional Comment is available now on the SEC’s website at www.sec.gov/rules/proposed/2006/ic-27395.pdf.
Additional materials: Request for Additional Comment; Release No. IC-27395