The regulators save the day
Jonathan Chevreau The National Post Wednesday, June 20, 2001

Saving Canadians from low-priced online brokerages

See also:
Ameritrade, Datek to set up Canadian shops [National Post, 20Jun01]
U.S. brokers agree to pay $2 million [Toronto Star, 20Jun01]
Online U.S. brokers bound to cost more further north [National Post, 21Jun01]

Once again, regulators have come to the rescue of Canadian investors.

Rescued them from low brokerage commissions, low-fee investments, superior research and a wide variety of products available only through U.S. brokerage firms.

And investors are duly grateful to the Ontario Securities Commission and its counterparts in other provinces, which yesterday clarified the ground rules for U.S. brokers wishing to serve Canadians.

"Oh, thank you, OSC, for rescuing us from the dastardly Americans, who have exposed us to the evils of lower prices, more choice, and better protection," said Lethbridge, Alta.-based investor Keith Betty, "This isn't 'protection' except of the jobs of the bureaucrats."

While no U.S. securities law prevents Canadians from using U.S. brokers, provincial regulations require foreign investment dealers wishing to sell securities to Canadian residents be registered in the applicable provinces.

For a time, our regulators tolerated Canadians dealing with non-registered foreign firms. They turned a blind eye to the practice for at least two years, until it cracked down last fall. The pressure came not from consumers but -- I suspect -- from the Canadian financial services industry, which takes a made-in-Canada approach to high stock commissions and lucrative mutual fund management fees.

Yesterday, the Canadian Securities Administrators administered an $800,000 slap on the wrist to three U.S. brokers, including TD Waterhouse Group Inc., allowing them to serve Canadians if they register in the provinces they wish to serve and/or establish offices there.

But investor advocates harbour no illusion that such a "solution" will mean the kind of low commissions they enjoyed when dealing directly with those firms in the United States. The U.S. arm of TD Waterhouse charges its clients US$12 a trade while TD Waterhouse Canada charges its investors US$29 a trade. Some U.S. discount brokers charge as little as US$1 a trade.

"Even if Datek comes to Canada by 'proper' means, how likely is it that they'd charge U.S. prices and not do what TD, E*Trade and Schwab do, i.e., charge what the market will bear?" asked Toronto-based Bylo Selhi, who uses that handle on Internet discussion forums.

It's unlikely Ameritrade Inc. or Datek Online Holdings Corp. --singled out yesterday -- could match their U.S. cost structures because they'll have to comply not only with Canadian regulations but also contribute to the Investment Dealers Association's Canadian Investor Protection Fund. More likely, their fees will be two or three times higher, which is the differential between the U.S. and Canadian arms of TD Waterhouse.

OSC spokesman Frank Switzer sees no link between regulatory costs and brokerage fees. He says the U.S. fees are lower because of economies of scale and competition, and he hopes yesterday's measures will increase competition in Canada.

TD Waterhouse U.S. had already come into line with the OSC's wishes last October, when Canadian customers were told they had to switch their accounts to the higher-fee Canadian operation or take their business elsewhere.

Outraged Waterhouse customers regarded this as nothing less than an "eviction" order. But instead of placating them, TD upped the ante in its own favour. In February, customers able to keep their U.S. Waterhouse account -- by using a relative with a U.S. address -- lost a free card providing a 1% rebate. Instead, they were asked to switch to a card with no rebate but which charged $25 a year.

"I am dumbfounded it came to this," says George Luste, a University of Toronto physics professor who uses a U.S. broker, "If we ever needed proof this is an asylum-run-by-the-inmates country, this is it. While the Lottery Commission promotes gambling, the security commission forbids frugality."

For active day traders, lower commissions were the driving force to use U.S. brokers.

Long-term "buy and hold" style investors were less motivated by commissio

Ameritrade, Datek to set up Canadian shops
Garry Marr
The National Post Wednesday, June 20, 2001

Settlement deal: U.S. online brokers pay $800,000 fines

Datek Online Brokerage Services Inc. and Ameritrade Inc. will be seeking registration to do business in Canada as part of a settlement with securities regulators across the country.

The two U.S. online brokerages, along with TD Waterhouse Investors Services Inc. (US), will each pay an $800,000 fine for allowing Canadian investors to open accounts despite the fact the brokerages were not registered to do business in Canada.

Under an agreement with the Canadian Securities Administrators, an umbrella group for 13 securities regulators in the provinces and territories, Datek and Ameritrade will now seek registration with the Investment Dealers Association of Canada. TD Waterhouse had already transferred its Canadian clients to its operations in Canada.

"We want to ensure Canadian residents have the protection of the law," said Sasha Angus, chief enforcement counsel with British Columbia Securities Commission, which negotiated the settlement on behalf of the CSA.

Datek and Ameritrade have both been granted exemptions to continue making trades on behalf of existing clients until Sept. 30 while they apply for registrations.

The Financial Post first reported in November that Datek had applied to the IDA for registration.

In a joint submission from securities commissions from Ontario, Quebec, Manitoba, Nova Scotia, British Columbia and Alberta, it was agreed that three firms had been making trades on behalf of residents in Canada since January, 1999, without being registered to do so -- a violation of securities legislation in all of the jurisdictions.

The Ontario Securities Commission called the conduct "contrary to the public interest" but many Canadians have been opting for the U.S.-based accounts because of the lower brokerage fees and the investment products that are otherwise not available in Canada.

Mr. Angus said the regulators were not trying to punish Canadian investors but instead wanted to make sure they were protected by local laws.

"The Internet is just another medium of trading, it's no different that using a telephone," he said.

Regulators say there are other brokerages from outside the country currently offering to trade securities to Canadians without being registered and they will track them down.

"We are able to track them through various methods," said Mr. Angus, noting firms are forced to advertise when they open for business.

The Toronto Star
Wednesday, June 20, 2001

U.S. brokers agree to pay $2 million
Dealers failed to register in Canada

Madhavi Acharya

Three U.S. online brokerages have agreed to pay Canadian securities regulators more than $2 million for accepting and making trades on behalf of Canadian clients.

Datek Online Brokerage Services Inc., Ameritrade Inc. and TD Waterhouse Investor Services Inc. (U.S.) - which were not registered to trade securities in Canada - will each pay $800,000 under a settlement approved by regulators yesterday.

The brokerages will also register in all provinces where they have clients.

``We want to ensure that everyone follows the same rules when they're trading with residents in our jurisdictions. We're the ones who have to make sure (investors) are protected pursuant to our laws, not someone else's,'' said Sasha Angus, director of enforcement for the British Columbia Securities Commission.

The deal was presented and approved simultaneously in Ontario, Manitoba, Quebec and Nova Scotia, with the securities commissions in the four provinces linked through Internet video-conferencing.

``If people are allowed to trade with no registration, then we're creating a regime in which our laws may not protect those who are trading (through) those individuals,'' said Angus, who led the settlement negotiations between the brokerages and the Canadian Securities Administrators, or CSA.

There are other unregistered online brokerages accepting Canadian customers, he added.

``We suspect there are quite a number of firms doing this. We'll be dealing with them now,'' Angus said, declining to elaborate.

The $2 million payment will go to the enforcement department of the CSA.

Some 8,700 Canadians have opened trading accounts with Datek, Ameritrade, and TD Waterhouse (U.S.) since January, 1999, lured by cheaper commissions and a wider variety of investments.

``We're not trying to get in people's way,'' Angus said. ``If people want to trade this way, we want to make it as easy and cheap for them as we can, but at the same time, everyone must follow the same rules.''

Datek and Ameritrade said in their settlements they ``didn't turn (their) attention'' to the fact that executing Canadian orders would be construed as trading in Canada.

New-York based TD Waterhouse prohibited Canadians from opening new accounts over the Internet after the firm was contacted by regulators in August, 2000. It started transferring Canadian clients to TD Waterhouse (Canada) as of Dec. 18.

Ameritrade and Datek will not accept new Canadian clients until the companies are registered here, but can continue to serve existing customers.

Regulators in B.C. and Alberta have already approved the agreement. The remaining provinces will rely on the existing settlements.

Online U.S. brokers bound to cost more further north
Jonathan Chevreau The National Post Thursday, June 21, 2001

Canadian customers will bear the cost of regulatory hoops

In your wildest dreams could you imagine a Canadian discount broker emulating the pizza industry with a promise that your "stock trade is executed in 60 seconds or the trade is free?"

I didn't think so.

But that's the kind of service you can expect when U.S. online brokers like Datek Online Brokerage Services Inc. and Ameritrade Inc. come to Canada.

New Jersey-based Datek already offers its American customers this 60-second guarantee. Whether it can also offer Canadians commissions as low as the US$9.99 its U.S. customers pay remains to be seen. As my nine-year old daughter says, "I highly doubt it."

Spokesman Mike Dunn says Datek wants to be in all 10 Canadian provinces, and "we'd like to maintain the same business model or be close to what we have in the U.S. and price accordingly."

Is that realistic, given the regulatory hoops of 10 provincial securities commissions, not to mention extra costs to join the Investment Dealers Association and feed its Canadian Investor Protection Fund?

That will depend on whether Datek is forced to modify its U.S. systems to adapt to requirements of Canadian regulators, Dunn says.

The British Columbia Securities Commission co-ordinated the requirements for the Dateks of the world to enter Canada. In addition to the three deals announced on Tuesday, 17 more were serving Canadians from the U.S. before the embargo on the practice, says BCSC executive director Steve Wilson.

Their frustrated former Canadian users see themselves imprisoned by a type of Canadian financial Berlin wall, and are pessimistic that commissions will fall much under the new regime.

One online trader suggests the $800,000 settlement the two firms and TD Waterhouse Investor Services Inc. (US) were each forced to ante up were akin to a sports franchise fee: the price of entry to a lucrative market accustomed to charging customers what the market will bear.

Nepean, Ont.-based Don Camer-on asks whether Canadian bureaucrats and politicians are marching to the tune of the Canadian securities industry, rather than the other way round.

"The suggestion they are protecting us would be laughable if it were not such a sad reflection of the anti-competitive instincts of Canadian governments and their agencies," says Cameron.

BCSC's Wilson professes surprise at the negative reaction. His view is regulators are helping introduce more competition and protecting Canadians from less-established U.S. firms that might go bankrupt. "In no way should any of this have any significant cost impact on Canadian customers," he maintains. If the Americans charge more here, it won't be because of regulation but because they make a business decision to do so, he says.

Until last year, extra costs were borne in Canada because of the requirement that discounters make know-your-client judgments. That's no longer the case, says IDA vice-president Larry Boyce.

Thus far, the Canadian units of Charles Schwab, E*Trade and TD Waterhouse charge about twice as much as their U.S. divisions.

Datek believes there is a demand in Canada for "fast, reliable, cost-effective trade execution" provided with no advice, Dunn says.

An Ameritrade spokesman could not say how low its fees may be, saying it will do what makes sense for clients, shareholders and employees.

How about TD Waterhouse, the first to pull the plug on Canadian customers of its U.S. operation? Spokeswoman Jessica Mossman says the U.S. arm has lower fees because it has three times the volume of the Canadian unit. The latter also has higher overhead because of certain taxes. She doubts TD Waterhouse (US) will register in Canada to compete with its sister firm.

It's not just low U.S. commissions customers are angry about losing. Most are convinced the Americans have better software and superior features.

Toronto consultant Chris Gilks says: "Day trading with TD is a sure way to go broke. We pay higher commissions for terrible service."

Accountant Edward Sweet says the OSC is trying to s


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