The Securities and Exchange Commission is urging a federal appeals court to dismiss a lawsuit brought by the U.S. Chamber of Commerce that targets a controversial new SEC rule for independent chairs of mutual funds.

Last spring, on the heels of the late-trading and marketing-timing scandal, the SEC ruled that independent chairs must comprise 75% of a mutual fund's board of directors. Board chairman must also be independent of the fund's daily management, the rule said. Since landmark governance was passed in 1940, just 40% of a fund's board has been required to be independent.

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