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

[MC Hammer]

I keep more than the $60K CDIC insured limit in one account too, just call me a crazy risk-taker.

I think that CDIC's limit is $100k, so maybe you are not such a crazy risk-taker

[marty123]

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.

Yes. Etrade has 3 types of accounts:

1 - Cash
2 - Margin
3 - Short Margin

You'd need to make sure you have #3 before trying to short a stock (or write a call/put).

[IdOp]

I've also been following the Norbert Gambit threads with interest, as I may need to convert C$ --> U$ later this year. I have a few other rough-hewn ideas along this line, which I'll post later, but this morning I was looking at this:

On TD Webbroker's Sell screen, there's an option menu where you choose the market, either Canadian or US. If you put a trial order into this, you can actually enter an order to sell an interlisted stock held in your C$-A account on the US market. The problem is you get this warning:

The currency of your account does not match the currency of the market. Your trade will be converted to the currency of your account. 41908]

This of course means vigorish. BUT: it does show you can sell such a stock on the US market online without having to convince a human it can be done, and asking for the low commission, and presumably without the need to journal it to the U$-B account.

So, the question is this: Can you simply phone Waterhouse and make a prior arrangement, saying I want to do the above and I want you to put the proceeds without conversion into the U$ account (to get around the vigorish problem)? Followed up by a phone call saying "I've sold it, now go ahead and do your part of the bargain."

Has anyone tried this variation?

[marty123]

BUT: it does show you can sell such a stock on the US market online without having to convince a human it can be done, and asking for the low commission, and presumably without the need to journal it to the U$-B account.

So, the question is this: Can you simply phone Waterhouse and make a prior arrangement, saying I want to do the above and I want you to put the proceeds without conversion into the U$ account (to get around the vigorish problem)? Followed up by a phone call saying "I've sold it, now go ahead and do your part of the bargain."

Not a TD user, but I would bet that selling a stock held in your CAD account that way will simply result in you getting the sale performed on NYSE while converting the proceeds back to CAD deposited in your CAD account. By the time you make this sale, I bet it all happens automatically and you'd be tremendously challenged in asking TD to wave the vig for a transaction that is driven by its computers and that you were warned about. If it works, you'd have 3 days to argue though. If it works, it may beat doing Norbert's Gambit without a margin account, but it certainly remains easier to just short the shares in the market in which you want to convert.

I can see this being a useful feature when you want to rush a sale of an interlisted share through on a Canadian holiday, and you're prepared to pay the vig. Without a margin account, you'd be left waiting for the next business day for a desk staffer to re-journal your shares.

[IdOp]

Not a TD user, but I would bet that selling a stock held in your CAD account that way will simply result in you getting the sale performed on NYSE while converting the proceeds back to CAD deposited in your CAD account. By the time you make this sale, I bet it all happens automatically and you'd be tremendously challenged in asking TD to wave the vig for a transaction that is driven by its computers and that you were warned about.

I agree. That's why I suggested originally that one would have to try to get a prior agreement from TD on this. Trying to reverse the currency conversion after the fact without a prior commitment from them would be hopeless, and unfair given the warning.

I imagine that if this were to work (with prior arrangement) then we'd probably have heard about it on one of these threads already, but I thought I'd throw it out there just in case. At the least the ability to sell an interlisted share this way could be used in one's argument if/when dealing with a broker rep who doesn't understand.

[Bylo Selhi]

So, the question is this: Can you simply phone Waterhouse and make a prior arrangement, saying I want to do the above and I want you to put the proceeds without conversion into the U$ account (to get around the vigorish problem)? Followed up by a phone call saying "I've sold it, now go ahead and do your part of the bargain."

I would try a slightly different variation. I'd buy, say 100 RY on the TSX using WebBroker, then immediately phone TD to ask them to sell 100 RY on the NYSE. When they tell me that I don't have 100 RY in my B account, I'd (a) point out that they're in my A account, (b) volunteer that I want to use the proceeds of the sale to buy US securities so this kills two birds with one stone and (c) ask them to execute the sale and then journal the shares. Even if a sharp agent notices that I'm about to deprive TD of some vig, I'd like to hear their compliance department's argument for why I can't do the transactions I'm asking them to do.

[IdOp]

I would try a slightly different variation. ...

It sounds like what you described there is the "standard" variation of Norbert's Gambit (unless I didn't catch something)? It is fine, although every way has its drawbacks and benefits. The variation I asked about would (if do-able) have the benefit that you are only asking one thing of them, namely put the proceeds into the U$ account. That is simple to describe and must be done ahead of time. In the standard gambit, you really have to ask them for 3 things: sell the stock for you, put in a web commission, and journal the shares. For that way also, I'm sure it would be a very good idea to call them ahead of time and find someone who agrees it can be done (in this case, we know it can because many here have done it before), so that you can call that person back after buying the shares and have them do it, without risk of wasting the afternoon fighting agents and having the stock tank on you at the worst time, etc.

I'll probably call them sometime and ask if my idea is possible. I'm not holding my breath though.

[Bylo Selhi]

It sounds like what you described there is the "standard" variation of Norbert's Gambit (unless I didn't catch something)?

Only that, while it's a just a small, subtle refinement to the standard Norbert's Gambit, it's important because there's no need to talk about FX. I suspect that what raises TD's hackles is if someone calls them and explains that the reason for doing the journalling is to avoid FX vig. But what I'm asking them to do is perfectly plausible in its own right. That it also happens to circumvent their FX vig is just a happy (for me) byproduct rather than the objective of the exercise. The agent has to be sharp enough to see through what I'm asking and then have the balls to challenge me over it.

One more thing. You can prime the buy order in WebBroker such that you pull the trigger only as a live agent answers the phone. By the time you exchange pleasantries and give them your name and account number the order has been executed. That way you minimize the amount of time you have a long position in the stock.

In the standard gambit, you really have to ask them for 3 things: sell the stock for you, put in a web commission, and journal the shares.

FWIW I ask for the web commission after they've done the other two steps. Otherwise there's a chance that the request for reduced commission could confuse things. Once they've agreed to sell/journal they no longer have any way to argue about the brokerage fee.

I'm not arguing that one approach is better than the other. I don't know either. By all means try your variation and report back.

P.S. I've done the standard Norbert's Gambit with TD on several occasions without any hassles. I'm a President's Account client. I call the special PA 1-800 that's supposed to be staffed by TD's most experienced agents. I wonder if that's why they don't hassle me.

[IdOp]

Thanks Bylo for the further comments. If I undertand it right, my concern would be that the agent simply mimics WebBroker, and says since the shares are in the A account, that's where the money will go. At that point it would boil down to the same question again: whether or not they can go outside the system and but it in B unconverted. Anyway, this is all getting hypothetical but I'll definitely report back if I learn anything.

... a few other rough-hewn ideas along this line, which I'll post later ...

Norbert's Gambit (NG) is a really nice idea, and for one thing we know it works in reality, which makes it pretty darn good in my book. But it does have its risks. E.g., short term market risk in a single security, which can be exacerbated by encountering incompetent brokerage traders. There are many roads to Rome, each with their own pro's and con's. I want to throw out a few other ideas for cheap currency conversion. Hopefully other posters can add ideas over time.
It would be good to have a selection of methods that fit various needs and risk profiles.

These examples are written for C$ to U$ to be specific.

1) Private deal with reliable counterparty. From time to time, you may have a unique opportunity to exchange currency with someone you trust. E.g., say you have a (trustworthy ) snow-bird parent, who has to stop going to the US for health or expense reasons. They sell their condo in North Dakota and re-retire to the warmer climes of Kelowna. They want to convert the U$ condo proceeds to C$. You could buy it from them in a private deal, say at the Bank Of Canada rate on a certain day. Both sides win. Write up a contract at fair market value, and pay each other by cheque or another documentable method.

The next ones are variations on NG, possibly with lower blood pressure.

2) Buy shares in an interlisted Canadian company that's being acquired for U$. In these kinds of deals, the price tends to approach the deal value with little fluctutation as the deal approaches. So you can buy the company in the C$ account, have time to journal it over, and then sell for U$ or wait for the deal to close and save commission. You gain a more leisurely pace and some price certainty. One risk is that the deal could fall through. Another risk is liquidity of the stock, but all-or-none orders might help.

3) Use an interlisted stock you already own and want to keep. Say you own some RY stock that you want to keep as a buy-and-hold investment. You could have it journaled over to the U$ account; doesn't matter how long it takes. Then with your C$ cash, buy the same amount of RY and shortly after that sell the journaled-over stock in the U$ account on the US market. This will have capital gain consequences, which are often bad, but not always. If the sale results in a loss, it will be superficial, but so what. If it's a gain, it could be modest, or if you're in a low tax bracket you may want to harvest some gains annually anyway. And, if you buy the substitute property (in the C$ account) before selling in the US, you've increased the cost base and about halved the capital gain on the U$ sale. (At least I think so, or is the settlement date all that matters? How do you document the time-of-day of the trades? If you have to wait a day, that is a bigger risk.)

Again, these are also imperfect, but a bit different and maybe worth chewing over, even if they get spit out.

[Bylo Selhi]

1) Private deal with reliable counterparty. From time to time, you may have a unique opportunity to exchange currency with someone you trust.

Another situation that may work for some people: If you know or work for a Canadian company that does business in the US, they may be willing to sell you some of the US$ they get from their customers using the mid-market FX rate. This would likely be a hassle with a larger company, but the owner of a smaller company is likely to be just as interested in saving ~1% as you are and therefore more apt to cooperate.

[drejmd]

So far as I know, there has been no mention of the significance (if any) of up-ticks/down-ticksyet in this discussion.

If I understand the rule correctly it could prohibit you from simply shorting the stock in a US margin account (assuming this is the route you chose), forcing you to make the call to TD requesting the transfer, sale, web commision anyway.

The direction of the market/chosen stock needs to be considered

fyi: TDWH only lists 2 kinds of accounts, cash and margin, buts goes on to point out that short-selling is an add-on to a margin account that needs to be requested/"approved"

[active]

The TSX has itself a dual currency trading platform and trades issues in CA$ and US$ without involving an interlisting with a US Exchange.

Does it help the procedure to keep everything in TO?

I think the trading symbol has a .U extension. How do I get a list of those companies.

[IdOp]

The TSX has itself a dual currency trading platform and trades issues in CA$ and US$ without involving an interlisting with a US Exchange.

Does it help the procedure to keep everything in TO?

I think the trading symbol has a .U extension. How do I get a list of those companies.

Good point, I had forgotten all about that. I think probably it wouldn't help, because the problem is not so much that the TSX and US markets are distinct, but rather that the C$ and U$ parts of the TD Waterhouse accounts are too separated. So the U$ facility of the TSX wouldn't help or hurt with this.

It might provide another option for selling stocks with the .U extension, but, at least the few times I looked at one of those they were highly illiquid, with huge spreads. So in practice as long as almost no-one is using that facility it isn't much good for anyone.

[IdOp]

The TSX has itself a dual currency trading platform ...

Just looked at this a bit more. There's a 2004 article on cbc.ca that announces it and lists the 12 companies in the initial pilot program. Many of these companies are still around (AL, CNQ, ABX, MX, RIM etc.). But attempts to get any quotes for CNQ.U etc fail. Did they change the extension? I did symbol searches, including at the tsx.com site, and they didn't turn up anything that looks like US$. In a search for "dual currency trading" on the TSX site, the most recent relevant article turned up was dated 11 May '05. Makes you wonder if they quietly canned this due to lack of interest. Does anyone know any more about this?

[Jay81]

But attempts to get any quotes for CNQ.U etc fail. Did they change the extension? I did symbol searches, including at the tsx.com site, and they didn't turn up anything that looks like US$. In a search for "dual currency trading" on the TSX site, the most recent relevant article turned up was dated 11 May '05. Makes you wonder if they quietly canned this due to lack of interest. Does anyone know any more about this?

Yes, I believe this was discontiuned around the same time the stock symbols were simplified on TSX. If I remember correctly this was sometime late last year.

[IdOp]

Thanks Jay81, that would definitely explain it!

[Icarus]

For IB users, I thought you may be interested to know that you can exchange CAD for USD, and then withdraw to a USD bank account. The only proviso is that there is a 60 day hold on any funds transferred to a bank account other than the originiating bank account. This isn't a problem if you have adequate cash or equities on hand to cover the withdrawal (i.e. if you have 60K USD in equities that you've owned more than 60 days, and need 10K USD in cash, you can transfer in, exchange and transfer out to another bank account without the hold).

At least that's what IB tells me. I haven't tried it yet.

[Bylo Selhi]

Norbert's [s]Gambit[/s]Opportunity to score an iPod and coffee with Doug? Do the arb

Years ago, I often bought Alcan shares on the New York Stock Exchange and sold them almost immediately on the Toronto Stock Exchange. I made a penny or two per share in profit after factoring in the foreign exchange rate. This is an arb for the big boys at investment dealers, of course, but arbitrage is everywhere... If you have any more clever arbs, e-mail me. We'll publish the best one, and I'll buy the winning genius a 2 GB iPod and a Starbucks latte.

[Antoni]

Icarus wrote:

For IB users, I thought you may be interested to know that you can exchange CAD for USD, and then withdraw to a USD bank account. The only proviso is that there is a 60 day hold on any funds transferred to a bank account other than the originiating bank account.

I think this was the situation some time ago from what I have read on the forum of InteractiveBrokers, but it seems things have changed, if we judge from what is said on their site, under Accounts/Funding/Deposits and Transfers:

Funds may be withdrawn after the 4-day credit hold.

If funds are withdrawn to a bank other than the originating bank, a 60-day withdrawal hold period will be applied.

Previously, the 60-day withdrawal hold period applied if the funds were withdrawn to a different bank account, not to a different bank. After complaints from customers, it seems this hold period does not apply any more if funds are withdrawn to a different bank account with the originating bank. So that it should be possible to withdraw the funds after the 4-day credit hold if, for example, Canadian funds have been exchanged for US funds at IB, and then the US funds are withdrawn to a US dollar account with the same bank.

If one wishes to send the US funds to a US bank, that could be made from the Canadian US dollar account and should be much less expensive than the abusive FX vig. Would the Canadian bank then apply a hold period? Anyhow it should be shorter than 60 days.
Could anyone confirm from experience that this is the situation now?

[AltaRed]

If one wishes to send the US funds to a US bank, that could be made from the Canadian US dollar account and should be much less expensive than the abusive FX vig. Would the Canadian bank then apply a hold period? Anyhow it should be shorter than 60 days.
Could anyone confirm from experience that this is the situation now?

I do not know why there would be a hold going either way (to/from Canada USD account from/to US domiciled bank account) unless it is in cheque form. I've wire transferred US funds from US to Canada without any delays or hold periods (but not the other direction).

[drejmd]

Have given "Norbert's Gambit" a go today.

Sold 500 shares of Encana (ECA) for 62.98 on the NYSE in a USD "short margin" account at TDWH and as soon as that order was filled (moments later), bought 500 shares on the TSX in a CAD "margin" account for 66.08.

I plan to call on Wednsday (+3 days from now) to ask for the shares to be moved from the CAD account to the USD account and will post the outcome at that time.

[IdOp]

Have given "Norbert's Gambit" a go today. ... I plan to call on Wednsday (+3 days from now) to ask for the shares to be moved from the CAD account to the USD account and will post the outcome at that time.

Sounds good. But why not phone them today and see if they will journal? If they're busy it might take a day or two for them to get around to it (or so they have told me once).

[drejmd]

Spoke to TDWH today to complete my transaction, successfully.

Requested the move of 500 Encana from my E sub-account (CDN margin) to my H sub-account (USD short margin)

The rep mentioned that could be done but not until the buy had settled on Wednsday. I accepted.

He then asked if I actually wanted them transferred to sub-account "G" (CDN short margin). I said no, "H" please.

He put me on hold for 2 minutes, apologized for the delay and confirmed that the move would take place on Wednsday.

All in , including hold times: 10 minutes.

[fundamental]

Plus a small commission on top per this. Nevertheless, it's an amazingly low number. Thanks, adastra.

Now if only they would hold RRSPs...

I've been waiting for this too. They will get all my business if they get into the registered business.

[drejmd]

... the move would take place on Wednsday.

Complete today (Thursday). No problems.