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[18974]
June 27, 2005
TO: BOARD OF GOVERNORS No. 31-05
CLOSED-END INVESTMENT COMPANY MEMBERS No. 37-05
SEC RULES MEMBERS No. 83-05
SMALL FUNDS MEMBERS No. 62-05
RE: ICI COMMENT LETTER ON SEC REVIEW OF FUND GOVERNANCE
REQUIREMENTS
The Institute today filed a comment letter with the Securities and Exchange Commission
concerning the Commission’s plan to consider at a June 29th meeting the fund governance
matters that the Court of Appeals for the District of Columbia Circuit recently remanded to it.∗
The letter notes that, under the Administrative Procedure Act and the court’s decision, the
Commission has a statutory obligation to consider whether a proposed regulation will promote
efficiency, competition, and capital formation, including by quantifying potential costs. It
recommends that the Commission invite additional public comment and collect additional data
to assure a thoughtful and deliberative process.
To assist the Commission in fulfilling its responsibilities, the letter identifies in an
Appendix certain foreseeable elements of the cost of complying with the two governance
requirements. It states that these cost elements are wide-ranging, that evaluation of the costs is
a complex undertaking, and that total compliance costs may be substantial. The letter urges the
Commission to make a complete and detailed analysis of these costs, and offers to assist the
Commission in quantifying them by collecting specific cost information relative to the
governance requirements from Institute members.
The letter then addresses the Commission’s obligation to consider alternatives to the
requirement that each fund have an independent chairman, including the disclosure alternative
discussed in the court’s decision. It recommends that the Commission also carefully consider
another alternative: requiring the chairman of the board to be elected annually by both a
majority of the board as a whole and a majority of the independent directors. The letter states
∗ These matters are (1) the costs imposed by requiring registered investment companies to have boards that consist of
at least 75% independent directors and an independent chairman and (2) reasonable alternatives to the independent
chairman requirement. See Memorandum to Board of Governors No. 30-05, Closed-End Investment Company
Members No. 35-05, SEC Rules Members No. 80-05 and Small Funds Members No. 58-05 [18962], dated June 22, 2005
(describing the court’s decision).
2
that, to fully satisfy its obligations, the Commission should consider other reasonable
alternatives as well.
Frances M. Stadler
Deputy Senior Counsel
Attachment (in .pdf format)
Note: Not all recipients receive the attachment. To obtain a copy of the attachment, please visit our members
website (http://members.ici.org) and search for memo 18974, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 18974.