Regulation Takes Its Toll

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Analysis: Traders Still on Vacation as ESMA Takes its Toll

While the activity of traders is slumping, emerging markets are on the rise

Since the summer break is far behind us, the activity of retail FX/CFD traders should be on the rise by now. At least that is how it always used to be, but not this time. Finance Magnates’ Intelligence Department examined the latest data from CPattern regarding industry behavior in September of 2020.

The first noticeable change that occurred over the summer vacation was a slump in the activity of traders. The average activity for the ten best-performing countries in our study decreased to 48,6 from 87.4 registered in June. This means that a typical retail trader conducted only 48,6 transactions on average in September.

When diving further into the numbers, we see that countries that traditionally have the most active traders such as China or Malaysia have fallen off the activity ranking. Only Turkey remained in the top spot. However, we can see some emerging markets in the top ten that are usually not showing up on our rankings. The fact that most of these are African countries combined with the absence of leading EU markets in this ranking leads us to assume that ESMA’s new regulations introduced in August of 2020 are to blame here.

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ESMA to be blamed again?

Although most developed FX/CFD countries were not especially busy following the summer vacation, they still had high average deposits. Our study shows that the average deposit being sent to trading accounts in the UK was as high as $3778.60, a result that puts the UK in first place. Second in the ranking is the Netherlands with an average deposit size of $3665.50. The first eight spots in this ranking are filled by EU-based countries, while ninth place went to Switzerland. The United Arab Emirates took tenth place as the only country outside of continental Europe.

This may also be a result of ESMA regulations. Since the maximum allowed leverage was significantly decreased, many traders had to deposit extra capital to their accounts. Only this way they could avoid the risk of margin calls which could happen under the new restrictions. It will be interesting to see what the data will show in this regard in the coming months.

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DoCoMo heads for India exit as competition, regulation take toll

DoCoMo’s exit from India after just five years highlights the difficulties both foreign and local telecom companies face in a fiercely competitive market, where carriers rely on cut-throat pricing to attract subscribers.

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DoCoMo paid 266.7 billion yen ($2.61 billion) for a 26.5 percent stake in Tata Teleservices in 2009. Under the joint venture agreement with Tata, DoCoMo could sell its stake for about half of what it originally paid for the stake or at a “fair market price”, whichever was higher.

“We invested in India because at the time we saw excellent growth prospects in emerging countries and we wanted to be involved there,” DoCoMo Chief Executive Kaoru Kato told reporters on Friday after the company posted its earnings for the financial year ended March 31.

“We came to this decision (to sell) because the growth we’ve seen in five years is not what we expected,” he said.

Tata Sons, the holding company of the Tata Group, confirmed DoCoMo’s plans to sell its stake in Tata Teleservices.

“As also stated by NTT DoCoMo, it is not possible to predict how events will unfold; however, Tata Sons is cognizant of its responsibilities, and will act keeping in mind the interests of all stakeholders and in accordance with law,” it said in a statement.

DoCoMo’s Kato blamed the joint venture’s poor performance on a delay in introducing 3G mobile networks that can carry high-margin data services, as well as an alleged corruption scandal that saw several companies, including Tata Teleservices, losing some or all of their zonal operating permits.

DoCoMo is one of several Japanese companies struggling with their investments in India, a rapidly growing market these firms had hoped would offset the effects of an ageing, and shrinking, population at home.

Pharmaceutical company Daiichi Sankyo Co agreed this month to sell its stake in drugmaker RanbaxyLaboratories Ltd to India’s Sun Pharmaceutical Industries Ltd after quality glitches led to its drugs being barred from the United States, halving the value of its initial investment.

Japanese carmakers including Toyota Motor Corp and Suzuki Motor Corp’s unit Maruti Suzuki India have also experienced labour unrest at their factories in India, leading to production losses.

Lagging targets
DoCoMo, Japan’s biggest telecom network by subscribers, said it would exercise the option to sell its stake by June if Tata Teleservices’ financial results for the fiscal year that ended March 31 failed to meet targets specified under an initial shareholder agreement.

DoCoMo did not specify the targets, and unlisted Tata Teleservices is not obliged to publicly disclose its results. A DoCoMo executive who declined to be named told Reuters Tata Teleservices was not expected to meet the targets, but also declined to specify what they were.

Tata is due to reveal its finalised results to DoCoMo within weeks, the executive added, declining to be named because of the confidentiality of the matter.

New Indian rules do not allow a telecoms carrier with operations in India to buy a stake in a rival carrier, although two carriers can merge their operations.

Some Indian media reports have said Vodafone is a likely suitor for Tata Teleservices. Any deal, however, would require Tata Teleservices to be merged with Vodafone’s Indian unit, with Tata Group either fully exiting the business or taking a minority stake in the merged entity.

“TTSL (Tata Teleservices Ltd) continues to be an integral part of the Tata group,” the Tata Sons statement said on Friday.

Singapore state investor Temasek and Indian businessman C. Sivasankaran also own small stakes in Tata Teleservices.

Tata Teleservices expanded into lucrative GSM-based mobile phone services after the deal with DoCoMo and amassed subscribers by offering a cheaper per-second billing plan, but it subsequently failed to build on its initial success and has lost market share in the past two years.

It currently ranks seventh in terms of subscriber numbers among the 12 firms that operate in India.

© Thomson Reuters 2020

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take its/a toll ​Definitions and Synonyms

The stress was beginning to take its toll on their marriage .

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