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The U.S. Securities and Exchange Commission must now reconsider its rule that says mutual funds have to be overseen by independent chairmen.

The SEC was ordered by a federal appeals court to reconsider the rule, after firms like Vanguard Group and Fidelity Investments fought to get the rule dismissed.

The SEC claims that the rule was made in an attempt to give investors confidence about how mutual funds are governed. The rule would not allow chairmen to be involved in management. As Bloomberg News reports,

The ruling in a suit filed by the U.S. Chamber of Commerce is a setback for departing SEC Chairman William Donaldson, who heralded the requirement as central to the agency's efforts to curb trading and sales abuses in the $7.9 trillion industry. Donaldson is leaving at the end of this month, and it is unclear if the SEC will respond to the court's concerns before he goes.

Republican Representative Christopher Cox of California has been named by President George W. Bush to replace Donaldson. His views on the case could be decisive since the rule passed on a 3- 2 vote with Donaldson siding with the two Democratic commissioners, Harvey Goldschmid and Roel Campos. Cox spokesman Paul Wilkinson declined to comment.

While the decision calls for the SEC to reevaluate the measure, it doesn't necessarily mean the rule will be scrapped. SEC spokesman John Nester said the agency is reviewing the decision and considering how to proceed.

The rule is scheduled to go into effect in January, but the SEC may or may not instate it. The ruling said that they must reconsider it. It was not exactly banned.

There's "a good chance that the whole decision on whether to try to resuscitate this rule is going to be deferred," said former head of the SEC's mutual fund division, Kathryn McGrath. "I seriously doubt that it's going to go into effect".

Chris is a staff writer for WebProNews. Visit WebProNews for the latest ebusiness news.