The mutual fund industry's most powerful lobbying group is urging securities regulators to re-open the comment period and collect additional data on the controversial governance rule requiring funds to have an independent chairman, just ahead of a scheduled vote on the matter.

In a letter to the Securities and Exchange Commission, Investment Company Institute General Counsel Elizabeth Krentzman said the Commission "has a statutory obligation to consider whether a proposed regulation will promote efficiency, competition and capital formation. The court's decision makes clear that the Commission must not only identify potential costs, but also quantify them as part of its analysis under this standard."

In accordance with a ruling by the U.S. Court of Appeals, the SEC will once again vote on the hotly contested rule at an open meeting tomorrow, the eve before outgoing Chairman William Donaldson will step down leaving Rep. Christopher Cox (R- CA) waiting in the wings. President Bush appointed Cox as Donaldson's replacement but he has yet to be confirmed by members of Congress.

For the ICI's part, Krentzman offered up a number of items that should be considered when evaluating the cost elements of the proposed rule mandating that mutual funds have an independent chairman and a 75% independent board of directors. The list included initial costs of the chairman/board selection process, a shareholder vote to amend the charter, if applicable, chairman/board orientation and education, investor communication such as added disclosure documents and an increase in customer feedback.

She also highlighted the ongoing costs associated with compensation, benefits, travel expenses, insurance premiums and any costs incurred for hiring administrative staff, training and professional development. With respect to possible alternatives to the rule, Krentzman suggested the SEC give careful consideration to the possibility of allowing the chairman to be elected annually by both a majority of the board and a majority of its independent directors and other "reasonable" alternatives.

Last week, the appeals court determined that while the SEC was well within its jurisdiction to implement the rule, it failed to consider the costs of compliance that it would impose on mutual funds and any possible alternatives to the rule. The court's decision came as the result of a lawsuit brought by the U.S. Chamber of Commerce attempting to block the requirement, which is scheduled to take effect in January 2006.

The first time around, the independence rule passed by a narrow 3-2 decision with Republican Commissioners Cynthia Glassman and Paul Atkins representing the dissenting votes. Democratic Commissioners Roel Campos and Harvey Goldschmid sided with Donaldson, who was facing increasing pressure from Congress to push through a series of investor protection reforms amid pervasive mutual fund scandal.

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