Stay-at-home rule enrages investors
Jonathan Chevreau The National Post November 3, 2000

Carlo Allegri, National Post
George Luste, a professor at the University of Toronto, uses discount brokers to bolster his pension plan.

Canadian customers of TD Waterhouse U.S. and other U.S. discount brokers are outraged that Ontario regulators have forced them to do business with their costlier domestic operations.

As reported in the Financial Post yesterday, at least 10 U.S. discount brokerages will no longer do business with Canadians because of pressure likely exerted by the Ontario Securities Commission. Their incensed customers are burning up cyberspace and filling my e-mail inbasket with their indignation and frustration.

Because of the cross-border aspect, the story has been picked up by such prominent U.S. web sites as The Motley Fool ( and American Liberty.

It's clear the OSC and its counterparts in other provinces are perceived as the bad guy in this story. TD Waterhouse Canada, no doubt, is relieved it will be able to repatriate some lost customers, who will pay roughly three times as much to execute trades through its Canadian arm. Doubly relieved, since it can blame the OSC for its decision to do so.

According to Hart & Associates Management Consultants Ltd., 6% of discount customers hold a direct U.S. discount account. They do so not just because of lower fees but to gain access to financial products and services not yet available in Canada.

What's unclear is what the OSC is doing interfering with the free marketplace in this age of free trade and globalization.

One prominent Toronto-based securities lawyer, who requested anonymity, questions whether the OSC even has the authority to exert such pressure on U.S. brokers: "I don't see why they [consumers] shouldn't be able to go to the U.S., if that's what they want to do. I have never felt the Securities Act applied extra-territorially, and that an individual resident in a province was not restricted to, in effect leave the province, and enter agreements wherever they want in the world for whatever they want to do."

The TD Waterhouse U.S. explanation to customers was that Canadian regulators had advised U.S. registered broker-dealers that they "must refrain from providing any investment services to residents of Canada."

What possible justification can the OSC have for this action? Hard to tell, because my calls to them were met with an abrupt "no comment." Presumably, the regulator is once again overstepping its bounds to "protect" Canadians from themselves.

Just like they "protected" investors from losing money on Bre-X Minerals Ltd. or YBM.

About all the OSC is "protecting" here is the right for Canadian brokers to charge more than their counterparts in the United States. And denying their clients from reaping the benefit of value-added services available in the United States but not yet available in Canada -- such as daily "sweeping" of cash into higher-yielding money market funds or free automatic reinvestment of U.S. dividends.

"Why do I need the OSC to protect me from Warren Buffett and John Bogle?" asks the "do-it-yourself" investor advocate who goes by the handle Bylo Selhi. Selhi owns shares of Berkshire Hathaway and Vanguard Mutual Funds in a TD Waterhouse U.S. account.

He and hundreds of savvy, cost-conscious investors like him have yet to decide on one of their options over the next month: They can locate the dwindling number of other U.S. brokers still willing to deal with Canadians: The Web site at names some of these. Or they can cave in to the OSC and either move to TD Waterhouse Canada or one of its low-cost competitors in the country, chiefly Charles Schwab Canada or E*Trade Canada.

Canadian brokers themselves say they would like nothing better than if overzealous regulators backed off and let them compete on price. "How about a little sympathy for the Canadian brokerage community?" one investment advisor e-mailed me. "We have been forced to give up all U.S. clients because of large punitive awards that are granted to U.S. investors who are sold securities by Canadian brokers. I sympathize with the day-traders

Canadians sound off:

In this global world I want to be upfront, competitive and challenging with my investing. I don't want to be second-rate. I don't want to continue being at a disadvantage because I am Canadian. Wake up, OSC and TD Waterhouse Canada, for treating us second-class. -- Don Ranson
Why am I, George Luste, a physics professor at the University of Toronto, messing with investments and discount brokers in the U.S.? In large part because my university has an inferior pension plan relative to other universities like McGill, UBC, Western and any university in the U.S. Thus I'm determined to try and make up the monetary difference with personal investments. So far I seem to be succeeding. -- George Luste, University of Toronto


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