The decision was made in response to a ruling by the US Court of Appeals for the District of Columbia Circuit in a lawsuit brought against the SEC by the US Chamber of Commerce, a business lobbying group (See Appeals Judges Consider Independent Fund Director Rule Challenge ) .
The rule, issued a year ago, requires that the chairmen of mutual fund boards, as well as 75% of a board’s directors, are to have no direct ties to the company that manages the fund’s assets (See SEC to Consider Independent Director, Broker Rule Changes ).
The Chamber, in its court case, argued that the SEC had exceeded its authority and violated legal procedures, and the court agreed, finding fault with how the rule was developed. According to Reuters, the Chamber has threatened to take the SEC to court again.
“The governance rules are a critical component of our reform efforts, and any further delay or ambiguity surrounding their implementation would disadvantage not only investors but fund boards and management companies,” said SEC Chairman William Donaldson, who is scheduled to resign on Thursday. It was expected that the rule would take full effect by January 2006.
Those who supported the reforms wanted to approve them before Donaldson’s resignation, while those who opposed believe the SEC should take more time to consider the court’s opinion, said Reuters.