In his weekend column, Rob Carrick pointed out that TD Waterhouse now allows clients with a self-directed RRSP account to automatically wash the sale of US-listed stocks or ETFs into the TD US$ Money Market Fund (TDB166). Earlier if clients wanted to sweep the proceeds of a US-listed stock sale into TDB166 or sell TDB166 to purchase a US-listed stock, they had to phone in their order.
Here’s how it would work for clients who sign up. Let’s say that an investor sells 1,000 shares of GE at $20 and purchases 250 shares of VEA at $40 in a self-directed RRSP account on the same trading day. Earlier TD Waterhouse will have set the exchange rate on the buy and sell to the same value automatically and if the investor did not call in to wash the trade, converted the portion of the trades that do not offset each other ($10,000 in this example) into Canadian dollars. The conversion would have cost the investor $150 to $200 due to currency conversion charges. Now, for investors who signed up for automatic wash trading, the net proceeds of $10,000 (difference between the proceeds from selling GE of $20,000 and buying VEA of $10,000) will be parked in the TD US$ Money Market Fund. For another example of how automatic wash trading will work, check out this Canadian Money Forum post. When the trades are settled, the investor will have 250 shares of VEA and 1,000 units of TDB166 in her account.
Now let’s say that a few weeks later, the client wants to purchase an additional 100 shares of VEA that is now trading at $30. She would put in a buy order for 100 shares of VEA and the order will get filled. TD Waterhouse will automatically put in an order to sell 300 units of TDB166 and wash the trades by setting the buy and sell rate on the transactions to the same value. When the trades are settled, the investor will have 350 shares of VEA and 700 units of TDB166 in her account.
If you are a TD Waterhouse client, here’s what you need to do:
– Call the TD Waterhouse trading desk at 1-800-465-5463 and sign up for automatic wash trading. You cannot sign up online and have to call in your request.
– Since there are no downsides to wash trading, you might as well sign up for all your RRSP and TFSA accounts.
– TD Waterhouse will not wash dividend payments. I wish they did because it would alleviate the demands for a US Dollar RRSP account.