Archive for July, 2011

Instant Norbert Gambit for All TD Waterhouse Investment Accounts

July 27, 2011


The Norbert Gambit is an excellent method for converting currency cheaply at discount brokers but some clients of TD Waterhouse have found gambitting with stocks in an investment account involves delays. A friend of mine purchased RIM on the TSX and hoped to sell RIMM on NASDAQ only to be told be TDW that he has to wait for the initial buy to settle (3 days) and a further 2 days before the journaled shares showed up in the US Dollar side of the account. My friend turned out to be lucky – RIM gained 10 percent during the wait but seeing how often RIM trades down these days, the story could have turned out differently. Now, thanks to the efforts of a Canadian Money Forum member who wishes to remain anonymous, all TD Waterhouse clients can implement instant gambits in their investment accounts. The member was also kind enough to put together the following post on how TD Waterhouse clients can make gambitting work for them.

TD Waterhouse representatives say they are ready now to execute the sell sides of instant stock gambitting pairs for all clients with every size of non-registered account [Note: Gambits can be done in TD Waterhouse RRSP accounts without the assistance of a representative].

Gambit trades are more complicated for a TDW licensed representative to handle than other kinds of trades. It’s helpful, therefore, for a client to understand the steps that are involved, not only from the client’s side of things but also from the broker’s.

Here are some hints:

  • TD Waterhouse clients should expect to pay the full agent-handled commission for the gambit sell side. [Note: Trades placed over the phone are charged a minimum commission of $43. If you’d rather wait for the trades to settle and pay WebBroker commissions, you can still gambit with DLR/DLR.U.]
  • Gambitting clients should prepare but not send the opening buy order, which will be an online order.
  • Next, contact a licensed representative by phone & make sure he or she understands what you want to do. Because more general representatives than before are now handling gambit trades, some representatives are fairly new at this practice, so a gambit client should be prepared to wait patiently if a rep needs to check with his team manager.
  • Client should send the buy order only when the agent confirms that he’s ready to do the sell order in the opposite currency.
  • As soon as the buy is filled, the agent will enter the sell order out of the opposite currency account. Initially, his system will block this order, just as investor’s online TDW trading platform will block it. However, the representative will be able to override this block and force the order.
  • At the same time, the representative will be sending a special manual journal request to the credit department alerting them that this trade, unusual though it may look, is nevertheless bona fide because the stock has indeed been purchased and is awaiting journal.
  • Notice that *NO* trades are ever placed through a short account. The gambit sell is executed upon a margin or cash account, not a short account. The result will be a virtual “short,” but it is not a real short in the technical sense of the industry. It does not get entered into the broker’s short records.
  • If there is sufficient margin in the margin account where the stock has been sold, investor may carry on to immediately purchase other securities. However, if gambit stock has been sold out of a cash account, the proceeds may not be used or withdrawn until the journalling of the stock has been accomplished, which will not be until 3-5 days later.
  • My own approach has always been to prepare everything & then contact a licensed representative. If i observe that trouble might develop for one reason or another, then i am always prepared to cheerfully abort the attempt. This is the reason for having the buy order ready but not sending it in until the agent is lined up. A gambit halted early like this is harmless, because no positions have been initiated. Investor should try later on the same day or else on the next day, with a different agent.

It’s important to keep in mind that, for the first time, TD Waterhouse is offering gambit sell trades to all customers on a goodwill basis. Retaining that goodwill is important. As easily and quickly as it has opened the sluice gates, the big green could close down all gambitting permanently, if it finds that staff are having to spend too much time dealing with individual clients.

RBC Dominion’s Reasonable Stance on RRSP Swaps

July 26, 2011

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While disallowing swaps in RRSPs for now, RBC Dominion Securities is taking a reasonable stance that they will work with CRA to find a way to continue to offer swaps within the parameters of the Budget 2011, which only penalizes RRSP swap transactions that result in a “tax advantage”. (A tip of the hat to Northern Raven for digging up this nugget of news).

Our Tax Advisory Group is working closely with the Canada Revenue Agency (CRA) to determine the exact impact of the new rule, which affects clients in every financial institution. We are working with the CRA in hopes of finding a solution that may enable us to continue to offer swaps to our clients within the parameters of the new legislation.

Until we have confirmation from CRA, we will take a prudent approach and help our clients reduce the risk of being subject to the 100% tax rate. Effective July 1, 2011, similar to other financial institutions, RBC Dominion Securities will not allow swap transactions involving RRSP/RRIFs and other non-registered accounts until we receive more guidance from CRA. Transfers from RRSP/RRIFs to other RRSPs/RRIFs of the annuitant will still be allowed.

Read the full announcement here.

One hopes that other financial institutions will also take a similar reasonable view and also clearly explain their decisions to their clients.

This and That: Interest Rates, $1,600 Gold and more…

July 21, 2011

  1. The Bank of Canada decided to keep interest rates steady this week but hinted that rate hikes are on the horizon. The Prime Rate to which lines of credit and variable-rate mortgages are tied to remains at 3.0 percent.
  2. The yellow metal hit $1,600 this week before easing up a bit making those of us who don’t own gold feel a tinge envious. This article in SmartMoney explores what could go wrong with gold’s rocket-like trajectory.
  3. Our local newspaper The Ottawa Citizen featured a heart-warming story of an elderly couple of modest means who won the lottery but gave it all away because they felt they already had everything they needed.
  4. Canadian Finance Blog points out that families receiving the National Child Supplement can get the Canada Learning Bond just for opening up a RESP for their children.
  5. Michael James waded into the debate between traditional capitalization-weighted indexing and the new-fangled fundamental indexing. A little while back, John Bogle and Burton Malkiel argued in favour of traditional indexing in a Wall Street Journal op-ed.
  6. Million Dollar Journey debated whether to leave an inheritance for the kids or give away the estate to charity or some combination thereof. We plan to fund our kids’ education but anything beyond that will be bonus, not to be counted upon!
  7. Canadian Couch Potato found that the Scotia iTrade US-Friendly RRSP offers significant savings over typical foreign exchange conversions at discount brokers.
  8. Larry MacDonald worried that the housing markets in Canada is showing signs of a bubble and suggested measures that can be taken to counter it.
  9. Money Smarts Blog shared his experience camping with young children. Our kids are pretty much the same age group but I think I’ll stick with day trips and picnics for now.
  10. The Blunt Bean Counter points out that low interest rates offer a great income splitting opportunity.
  11. Today’s Economy Blog offered ten reasons to worry about the European debt crisis. Of course, a potential financial crisis is no reason to abandon’s one’s well thought out asset allocation plan.
  12. My Own Advisor lists the reasons why he isn’t a fan of mutual funds. If you must own one, look for a fund with low fees and low turnover.

Just a quick reminder that you can read my posts in your favourite reader or delivered by e-mail. Have a great weekend everyone!