The new text has an almost opposite effect of the original Demanding Challenge. If with a 5' step the target can get away from the Cavalier and attack a new target, he is better off doing so, as he will not suffer the -2AC until the Cavalier moves; which then forces the Cavalier to delay until after the target goes in order to keep the pressure on him.
So now we have a case of the mob running away from the Cavalier to avoid the penalty, whereas we had the Cavalier running away from the mob to keep the penalty on it in the prior version.
Perhaps give the Cavalier a free Step Up when dealing with his challenge target, so that if the target wants to get away, it actually has to move and not just step. This still doesn't give the feeling that the target has to pay attention to the Cavalier though.
How about if the Cavalier melee attacks a challenged mob (just attacks, doesn't need to hit), he inflicts a -2 AC on the target, until the beginning of Cavaliers next round, or until the target attacks the Cavalier.
Could even make the penalty to AC extend until the end of the Cavaliers next turn so the he gets the benefit of the debuff, as he is facing a cowardly enemy.