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02 February 2018 The MIFID II 10% Rule: Tilting at Windmills

"Do you see over yonder, friend Sancho, thirty or forty hulking giants? I intend to do battle with them and slay them." Miguel de Cervantes

In Don Quixote, by Spanish author Miguel de Cervantes, the eponymous hero sees a series of windmills on the plain and imagines that they are “hulking giants” that need to be slain. He believes that his mission “is a righteous war and the removal of so foul a brood from off the face of the earth is a service God will bless”.

One wonders whether the bureaucrats in Brussels went through a similar thought process when designing a client reporting rule where discretionary fund managers are required to inform clients on the same day should their portfolios suffer a 10% decline in value intra-calendar quarter. The argument might have gone something like this: losses are bad; double digit losses are very bad and should be avoided; uncertainty as to whether an investor has suffered such losses must be removed; more transparency is our mission; we will wage a righteous war on discretionary fund manager reporting practices. 

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