(The news featured below is a selection from the news covered in SEC Today, which is distributed to subscribers of SEC Today.)

Positions Unchanged on SEC's Fund Governance Rules

Fidelity Investments has urged the SEC to await its general counsel's review of the Commission's rulemaking processes before taking any further action on its mutual fund independent chairman rule. SEC Chairman Christopher Cox, on June 13, requested a top-to-bottom review of the agency's processes for complying with the National Securities Markets Improvement Act of 1996 and the other laws that require an economic analysis of its rule proposals. The deferral of any action on the SEC's independent chair rule is particularly appropriate, in Fidelity's view, because the impetus for the general counsel's review was the shortcomings identified by the D.C. Circuit Court regarding the SEC's approach to the economic and competitive issues in its rulemaking proceeding.

The court vacated the SEC's requirement for an independent chair and 75% of independent directors on fund boards on July 20, 2006. Fidelity said it supports the Investment Company Institute's view that the SEC should not reinstate the independent chairman rule. Fidelity also suggested that, after the general counsel's report is completed, the SEC should consider seeking public comment on any significant changes to future analyses of the competitive impact and economic implications of proposed rulemaking.

The Chamber of Commerce, which twice challenged the SEC's fund governance rules, said the principles that should guide the Commission going forward include a presumption against interfering in financial markets, changing corporate organizations and eliminating investor choices without a compelling reason to do so. If the SEC chooses to amend the existing exemptive rules, the Chamber urged it to adopt a disclosure alternative rather than the previously adopted requirements.

The Consumer Federation of America and Fund Democracy wrote that they were disturbed that the SEC has cast doubt on whether it will adopt the rules. The last ruling by the Court required only the collection of cost data and the weighing of costs and benefits before the rules could become law, according to CFA and Fund Democracy, yet the SEC's request for additional comments raised issues beyond the costs of the requirements. The SEC should not back away from its rules and send the message that its actions are open for reconsideration "based on the leverage of private interest groups and the prevailing political winds."

Florida's board of administration which manages the state's retirement system wrote in support of the governance rules. The board said that any mutual fund that has a nonmanagement chair is not adhering to what many organizations deem a best practice in mutual fund corporate governance. The board urged the SEC to consider additional reforms, including the strengthening of how independence is defined, a requirement for annual elections for mutual fund directors and disclosure standards similar to listed companies. The disclosure standards for funds should include information about meeting attendance and director and manager compensation, in the board's view.

The Mutual Fund Directors Forum, a nonprofit organization whose membership consists of mutual fund independent directors and trustees, believes the benefits of the SEC's fund governance rules are clear. The Forum said there is substantial evidence that the costs of the SEC's rules are negligible in relation to fund assets or other operating expenses such as advisory fees. Although the SEC's rules have twice been rejected by the D.C. Circuit, the Forum noted that the court has not questioned the SEC's conclusions about the benefits of the rules, or even the costs imposed by the rules. The court's concern was with the adequacy of the SEC's rulemaking process and was the basis on which the rules were remanded for further consideration, according to the Forum.