A federal appeals court ordered the U.S. Securities and Exchange Commission to reconsider a rule requiring mutual funds to be overseen by independent chairmen, a victory for Fidelity Investments and Vanguard Group, which spent more than a year fighting the provision.

The decision by a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit in Washington said the SEC failed to properly consider the costs of the governance rule passed last June. About 80% of fund companies, including Fidelity and Vanguard, the two biggest, have boards run by insiders.

The SEC has a legal “obligation to determine as best it can the economic implications of the rule it has proposed,” Chief Judge Douglas Ginsburg wrote in the unanimous decision.

The ruling is a setback for the departing SEC chairman, William Donaldson, who heralded the requirement as a central part of the agency’s efforts to curb trading and sales abuses in the $7.9 trillion industry. Mr. 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.

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

While the decision calls for the SEC to re-evaluate the measure, it doesn’t mean the rule will be scrapped.