Norbert's gambit - Can$ to US$ or vice versa

[yielder]

I have a question about this, how long after the trade can you transfer your money out of the account? Do you have to wait 3 days?

Three days unless it's a margin account but It'll cost you margin interest to take it before three days.

[drejmd]

I am interested in this in order to exchange ~120K in my spouses un-registered account.

I filtered the tse by daily volume (>1,000,000) and ranked these 100 co's by price. Starting at the top and comparing with the list of interlisted co's on the tse website, the top 3 are suncor, nexen and encana.

Am I on the right track?

I'm not sure I understand the admonishment to avoid "exchangeable" shares.

Is the call to the broker to request the journalling step at all time sensitive?

As pointed out up-thread, if I can "earn" $2000 in under an hour I would be very happy. If for some reason it ended up costing me that, I ( and by extesion, we) will have at least hopefully learned something

Thanks,
DJ

[adrian2]

All accounts at the same address are given PA status. My oldest daughter who has moved out into student housing but still uses us as a mail drop and has PA status.

Yes, but it's not automatic, you have to ask.

It might be possible to convince TDW that while individual accounts at the same address don't qualify for PA status, on a combined household basis they do.

You don't need to "convince" them, it's their official policy now. Again, it's your onus to notify them.

[adrian2]

I don't know guys, (with respect), I think you're all a bit wonky using this trick to save such small amounts of cash. You're messing with $60K on a volatile stock at market, all to save $200?

At that level, it can be much more than $200.

2% forex vig, split it 1% on each side = $600.
2 commissions + spread can easily be less than $100.

Also note that it you have been approved for shorting you can do both transactions without any phoning.

[adrian2]

I have a question about this, how long after the trade can you transfer your money out of the account? Do you have to wait 3 days?

Three days unless it's a margin account but It'll cost you margin interest to take it before three days.

True, but it works both ways - you don't have to provide the input money for 3 days. IOW, do the trade 3 business days in advance of the actual time you need the exchange to happen (i.e. you need the money).

[adrian2]

Starting at the top and comparing with the list of interlisted co's on the tse website, the top 3 are suncor, nexen and encana.

You should also take into account the spread on both exchanges, as well as the volume on both (you don't necessarily need a million on each)

I'm not sure I understand the admonishment to avoid "exchangeable" shares.

The idea is to use shares that are exactly the same on both exchanges (same CUSIP) and not some shares which are merely exchangeable from one to another (in many cases that can be a one way street, which means one kind is more "valuable" than the other).

Is the call to the broker to request the journalling step at all time sensitive?

If you don't have shorting privileges, definitely. You'd have to call the broker, explain the situation, convince him/her, wait for the shares to be journalled before you can do the second part of the transaction. If you can short, all you have to do is call the third day for the journal.

[ig17]

the top 3 are suncor, nexen and encana.

Am I on the right track?

The one time I did "Norbert's maneuver", Suncor worked well for me.

[Bylo Selhi]

If you don't have shorting privileges, definitely. You'd have to call the broker, explain the situation, convince him/her, wait for the shares to be journalled before you can do the second part of the transaction. If you can short, all you have to do is call the third day for the journal.

I don't have shorting privileges at TD Waterhouse. It only takes a single phone call to sell the shares I just bought in the other currency and to ask them to do the journalling in 3 day's time. They've never let me down so I presume their internal system has a feature for post-dated journalling rather than that their agents are good at following up

[tnl]

Trying to use strategy of buy RY Canadian shares and sell on U.S. exchange to get some U.S. money and min. exchange rate.

TDW is telling me I have to wait 3 business days for buy on Can side to settle before the shares can be journalled to U.S acct to sell. I thought this could be done in the same day?

He said for say day they journal the buy order that executed on the Canadian side to US side and do a exchange rate conversion from canadian to us for the buy of ry which is what I am trying to avoid.

[Bylo Selhi]

TDW is telling me I have to wait 3 business days for buy on Can side to settle before the shares can be journalled to U.S acct to sell. I thought this could be done in the same day?

I call bullshit. The moment you buy the shares you own them so you can at that moment sell them on the other exchange. The journalling has to wait 3 days until your buy settles but you can ask them to accept the journal request on the same day that you place both the buy and sell orders. I've done it several times.

Escalate to a more senior agent.

[jeebuz]

Does anyone know if you can use Norbert's Gambit with Questrade? Given Questrade's low commissions on equity trades ($5 + $0.01 per share) you could convert even small (<$10K) amounts for a reasonable cost.

[tnl]

I call bullshit. The moment you buy the shares you own them so you can at that moment sell them on the other exchange. The journalling has to wait 3 days until your buy settles but you can ask them to accept the journal request on the same day that you place both the buy and sell orders. I've done it several times.

Escalate to a more senior agent.

--------------
update:

I am using Tdw (discount). I escalated to the senior traders, although they all said they are senior traders.
1. They said if you are doing this type of trade to min. exchange rates to get us dollars and not as an investment (meaning you are doing it in one day) then they can't do it as it violates some policy.
2. If you are doing it with shares 1 day old or older then yes they can journal the shares over to the US side, but they have to place the buy order for you.

[active]

They said if you are doing this type of trade to min. exchange rates to get us dollars and not as an investment (meaning you are doing it in one day) then they can't do it as it violates some policy.

It is none of their business why you are doing a trade and what your motivations are.

The question is: Do you own the stock you are wanting to sell.

They will agree that if you buy and sell by webbroker on the canadian side of the account only that there is no problem. You can buy and sell the same stock ten times a day if you want to.

Having to manually journal over a stock to the US side is nothing but a deficiency of the software. In an ideal world you could do this with a click of a mouse and take advantage of the arbitrage betwen markets.

[George$]

update:

I am using Tdw (discount). I escalated to the senior traders, although they all said they are senior traders.
1. They said if you are doing this type of trade to min. exchange rates to get us dollars and not as an investment (meaning you are doing it in one day) then they can't do it as it violates some policy.
2. If you are doing it with shares 1 day old or older then yes they can journal the shares over to the US side, but they have to place the buy order for you.

Over the years I have done a couple of such $100k currency exchanges via my TD Waterhouse Web Broker (discount) accounts. I have both a Canadian margin account and a US margin account. I also insisted that I not be charged for their 'software deficiency'.

In the telephone call asking that the shares be journaled from one account to the other I had to be somewhat insistant that this was ok and my right to do so.

Because it potentially diminishes their profit on foreign exchange TD does not like it. Tough.

[tnl]

They will agree that if you buy and sell by webbroker on the canadian side of the account only that there is no problem. You can buy and sell the same stock ten times a day if you want to.

Having to manually journal over a stock to the US side is nothing but a deficiency of the software. In an ideal world you could do this with a click of a mouse and take advantage of the arbitrage betwen markets

----
I explained the above to three different senior traders. They agreed but still can't do it the same day as is considered for exchange purposes and not an investment (must be new rule - ha).
I'll be doing it a few more times in the future, wanted to try for a small amount first to see if/how it works. I started this last Thurs so just sold the shares today on US side.
I think I'll just have to be more forceful as suggested and try different senior traders.
thanks for all the help and suggestions re the approach.

[Pobre]

I completed about six US/Cdn transactions at TDW in the 2004/05 period and possibly as late as early 2006, and almost everytime I ended up with an discussion/argument about whether it could or could not be completed. The discussions were always brief and I always won.

At one point I talked to a supervisor about another matter and mumbled about always receiving an objection whenever I asked a broker to complete the second half of my US$/Cdn$ buy/sell transaction. She said that any hassle that I was receiving was nonsense, and it was their policy to complete the transactions manually to overcome the software deficiencies. And she added if I ever had a problem again to use her name and extension. Her name sounded like "Melina", and the extension was 40815, and I believe she was based in Edmonton. I have no idea whether she is still there, or further up the food chain, but if nothing else is working, you could ask for her extension. I have moved my accounts from TDW, otherwise I would call and check her whereabouts for you.

Also, you don't need the stock to actually arrive in the other half of your account that day...as long it arrives by settlement day everything will work out. As I recall, in my transactions I could not sell the stock because it wasn't in the right account, however the agent/broker can override that and put the order in manually at the online charge of $29 (provided you remind him at the start of the conversation that it should go through at $29 because the software will not permit it to be done online).

I don't recall when/how they initiated the journal of the stock, but it always arrived in the right account by settlement day.

[ig17]

I explained the above to three different senior traders. They agreed but still can't do it the same day as is considered for exchange purposes and not an investment

Next time, do not tell them what you are trying to accomplish. It's none of their business. Just ask them to sell the stock, specify the stock exchange and the sub-account where to put the proceeds. That's it. If they insist on knowing more, tell them that you invented a new bulletproof day trading strategy.

The one and only time I did "the gambit", the CSR cheerfully warned me that I were likely to lose money on the transaction, due to foreign exchange spreads. My response, in a very disappointed tone: "Yeah, I know. Sigh... Let's sell it anyway".

[Bylo Selhi]

I completed about six US/Cdn transactions at TDW in the 2004/05 period and possibly as late as early 2006, and almost everytime I ended up with an discussion/argument about whether it could or could not be completed. The discussions were always brief and I always won.

That's been my experience as well.

provided you remind him at the start of the conversation that it should go through at $29 because the software will not permit it to be done online).

Since last fall, if you have $500k at TDW they should be able to do it for CA$9.95 plus US$9.95.

I don't recall when/how they initiated the journal of the stock, but it always arrived in the right account by settlement day.

That's been my experience as well. ISTR one guy tried to get me to call back on settlement day to request the journal. I told him I'd never needed to do that before. He relented. Everything got done properly.

IANAL but a broker's duty is to carry out your instructions. They get paid for doing it via brokerage fees. They can (and should) decline if what you ask them to do is illegal, however, there's nothing illegal about simultaneously buying and selling interlisted stock on different exchanges. If they hassled me about it I'd remind them that they're my broker and that if they don't know what that means I'd be glad to get their compliance people (if not the IDA et al) to teach them

[drejmd]

I am following this thread with more than just a little curiosity.

My question is this: If your account(s) allow you to sell stocks short, does it really matter when or how you convince the latest hiree at TDW to do the journalling?

ISTM that the stock has been bought in the CAD account and this transaction settles 3 days later, ie. as long as your cash shows up, you own it. Meanwhile you have shorted a stock in your USD account and (this is where my inexperience makes things a little fuzzy) the cash shows up 3 days later. You could then spend as much or as little time as needed to convince the dudes at TD that you wish to cover your short with some stocks( with the identical CUSIP) you have laying around in your CAD account.

In the meantime the "exchange" has occurred and the "rate" has been fixed, and nothing bad is happening (other than some unhealthy changes in your blood pressure)

Am I missing something? Can a person simply "sign up" for an account that allows shorting, or do ya have to deposit some cash(requiring a foreign exchange) to get things rolling?

[Bylo Selhi]

Can a person simply "sign up" for an account that allows shorting, or do ya have to deposit some cash(requiring a foreign exchange) to get things rolling?

My accounts are cash-only. Norbert's Gambit doesn't entail any shorting. I've had no trouble doing Norbert's Gambit at TD WH.

Suppose you want to convert from CA$ to US$. Once you pull the trigger on the CA-listed stock, you own it even though it doesn't show up in your account for 3 days. (Proof: You can sell that stock, again on TSX, a moment later even though it hasn't settled yet. Day-traders do this all the time. Brokers get rich servicing day-traders.)

The only differences in Norbert's Gambit are (a) it requires that you sell those shares on a different stock exchange and (b) TD WH's WebBroker system won't let you do that because it doesn't realize you own the shares in your CA$ subaccount. That's why you have to phone them, (a) to do the sell on the NYSE and (b) to journal over the shares at settlement.

Note that at no time have you shorted, loaned or borrowed anything. It's all yours the moment you do the initial buy providing there's enough CA$ cash in your account. You just want TD to move your shares from your CA "pocket" to your US "pocket" in your pair of "trousers" (*)

Frankly I'm surprised that TD doesn't charge a nominal amount, like the $50 fee to swap shares and cash between an RRSP and taxable account. (Not that I'm lobbying them to do so )

(*) For those who don't recognize the allusion, see An Interview with Merton Miller and his 10-second explanation of the M&M theorem:

If you take money out of your left pocket and put it in your right pocket, you're no richer. Reporters would say, you mean they gave you guys a Nobel Prize for something as obvious as that? [Lots of laughter.] And I'd add, Yes, but remember, we proved it rigorously. [More laughter.] Actually, we did use a new form of rigorous proof known as "arbitrage" proof. Arbitrage proof has since been widely used throughout finance and economics.

And of course, Norbert's Gambit is just a clever exploitation of arbitrage. Once you use it you can impress people at cocktail parties by telling them (truthfully) that you're an arbitrageur

[Norbert Schlenker]

Norbert's Gambit doesn't entail any shorting.

To the discount brokers' computers, it looks like a short. In a cash account, the usual rules are that you have the cash in the account if you're buying and you have the shares in the account if you're selling.

While Bylo is absolutely correct, doing this with a cash account can (and obviously does) cause problems. You need to weigh how much effort you're willing to put in convincing what are often minimally trained and minimally competent telephone clerks to do what the computer says should not be done.

I've decided it's not worth my while to argue with such people or to demand escalation to someone with half a brain and more than a month on the job, so I use margin accounts. You can short in a margin account, the computer doesn't care and won't stop you, and you never have to deal with half competent staff. I don't run debits in the accounts, so the securities are just as segregated as they would be in a cash account.

For anyone who wants to use this method to exchange large sums, I recommend margin accounts highly, not because leverage is good for most investors, but because it means you can avoid stupid rules and dealing with the stupid people tasked with enforcing those rules.

[drejmd]

so I use margin accounts. You can short in a margin account, the computer doesn't care and won't stop you, and you never have to deal with half competent staff.

Don't you still have to talk to [s]half-competent staff[/s] someone to get the shares moved from the CAD account to the USD account?

I don't run debits in the accounts, so the securities are just as segregated as they would be in a cash account.

Pardon me Just when I think I'm startin to get it, you guys throw in a statement that looks like regular English but... well not quite Greek, but I still don't think I understand.

[Norbert Schlenker]

Don't you still have to talk to [s]half-competent staff[/s] someone to get the shares moved from the CAD account to the USD account?

True, but a journal entry on settlement date is trivial enough that I've never had a problem, no matter how green the person at the other end of the phone line.

I don't run debits in the accounts, so the securities are just as segregated as they would be in a cash account.

Pardon me Just when I think I'm startin to get it,

I'm very sorry about that. Just when I think everyone understands, I lapse into jargon.

A concern often expressed about margin accounts is that the securities held in them can be lent to third parties by the broker. (That's one of the standard conditions you agree to with a margin account.) In effect, your shares become the property of the broker, indistinguishable from any other property of the firm. That introduces risks beyond what you would normally run with either shares in a safe deposit box or in a regular cash account with the broker. The borrower of the shares could default when asked for them, for example.

However, a broker cannot borrow shares out of a margin account if the account's owner has not borrowed any money (in jargon, the account is not in a debit position). If the account has a zero or positive cash balance, the broker is required to segregate all of the account's securities from the broker's own proprietary account, to keep them safe, and cannot lend them to anyone. Your brokerage statement will show this clearly with a notation in the list of positions (generally SEG but could also be a code like SFK).

To sum up, a margin account with a zero or positive cash balance allows the broker no more latitude with the securities you own than if your account were a run of the mill cash account.

[Chuck]

Am I missing something? Can a person simply "sign up" for an account that allows shorting, or do ya have to deposit some cash(requiring a foreign exchange) to get things rolling?

At TD you can. I recall a few years back asking to have both my CAD and US cash accounts "switched" to margin accounts. I didn't have any immediate plans to use margin (and still haven't, I just wanted it available should an astounding opportunity ever pop up, I wasn't even thinking about currency exchange at the time). It was no problem. Mind you, I had assets in both accounts at the time.

I confess to being totally ignorant about Norbert's concern regarding brokers having more latitude with my securities. To be honest, it wouldn't make a difference to me. I just can't get myself worked up about 1 in a million (or is it less?) disaster scenarios. I keep more than the $60K CDIC insured limit in one account too, just call me a crazy risk-taker.

[MC Hammer]

I've decided it's not worth my while to argue with such people or to demand escalation to someone with half a brain and more than a month on the job, so I use margin accounts. You can short in a margin account, the computer doesn't care and won't stop you, and you never have to deal with half competent staff.

When I tried this using a margin account at ETrade, it would let me do it. Instead, I got a message, that said I needed a Short Margin Account and asked if I wanted to open an account. I don't know if this is specific to ETrade, or if other brokers also require a Short Margin Account.