Canadian Money Forum members are reporting (here by @avrex and here by @slacker) that converting Canadian dollars into US dollars or vice-versa with the Norbert Gambit in registered accounts at TD Waterhouse does not require journaling. If you recall, the currency conversion method involves buying an inter-listed stock on the TSX and selling the same stock in an US exchange. By riding on the coattails of arbitrageurs, investors can exchange currency pretty close to the spot rate. In taxable accounts that are not set up for shorting stocks, the Gambit requires a phone call to TD Waterhouse to journal the purchased shares from the Canadian dollar account to the US dollar account. Journaling stock involves manual intervention and any number of things could go wrong: high call volumes at TD Waterhouse, customer service reps unfamiliar with the Gambit etc.

In a RRSP account, all a TD Waterhouse client who wants to convert her Canadian dollars into US dollars needs to do is purchase a stock on the TSX and sell the same stock on the NYSE immediately. Let’s take an example. Our TD Waterhouse client purchases 25 shares of Potash Corporation (TSX: POT) for $4,526 plus commissions. She then turns around and sells Potash Corporation (NYSE: POT) for US$4,573 less commissions in the same RRSP account. She then phones TD Waterhouse the next day to wash the proceeds of the stock sale on the NYSE into the TD U.S. Money Market Fund (TDB166). Voila! She has converted Canadian dollars into US dollars for the cost of two trading commissions and bid-ask spreads. The effective exchange rate before commissions works out to US$1.0103. TD Waterhouse’s exchange rate is US$0.9962. If the client is eligible for $9.99 trading, she will be saving roughly $40 or slightly less than 1 percent on this transaction.

That doesn’t sound like much but the key difference is that the cost of a Norbert Gambit is more or less fixed but the TD Waterhouse charges a percentage for the conversion. On a $10,000 currency conversion, an investor could save around $120 (assuming $10 trading commissions). I’d be interested in hearing if the Norbert Gambit can be implemented just as easily in RRSP accounts at other discount brokers.

This article has 21 comments

  1. Hi CC. I’m in the process of converting my hedged to Canadian dollar ETFs into the nonhedged US dollar version (ETFs bought in late 2008/early 2009 when the Loonie took its dive). I’ve used Norbert’s Gambit a few times this past week in my RBC DI accounts.

    The process was straight-forward to carry out in both my RRSP account and my unregistered trading account.

    As soon as I sold my hedged ETFs, the Canadian funds became available. I then immediately purchased a dually traded equity off of the TSX paying with Canadian funds (I used RY-T: Royal Bank stock). As soon as the order went through, I then immediately sold the stock on the US side (RY-N), directing the funds to deposit into the USD side of my investment account. The US dollars immediately became available and I then went to work right away purchasing the US equivalents of my ETFs. No telephone calls were required. Very, very easy to do and I’m loving the exchange rate that I was able to obtain.

    One final note: the RESP accounts at RBC don’t allow for US dollar holdings. I wasn’t able to use NG for my conversions here. RBC DI tells me that the RESP program forbids US currency holdings. I’m not sure if any of your readers can verify this?

  2. Even if a client is eligible for $9.99 trading, in your first example (the $4.5k trade), the client would save slightly more by just using a broker that offers 50 pips over interbank on currency exchanges in the first place, and wouldn’t have to do the gambit. (The $10k example however is slightly more profitable using the gambit, but you can do the gambit with other brokers as well.)

  3. I can confirm B.C. Doc’s experience with RBC DI. I performed the Gambit about 2 months ago in a registered account and no phone calls were necessary. I even verified with RBC beforehand that this would be the case. Everything went perfectly.

    I’m just curious what stocks people are using to perform the Gambit. I need to convert some more $$ and was looking to use RY because of the relatively high volume/liquidity. Is there a better choice?

  4. B.C. Doc: Thanks for your input. It’s good to know the Gambit works really well at RBC DI. It’s possible RESPs don’t allow US currency. I’m not 100% sure. It doesn’t matter for me anyway because RESP funds are in TD e-Series Funds.

    @Viscount: Fair enough. It’s just that I’m not comfortable with the smaller brokers. My past experience with them hasn’t been very good but to be fair, I don’t hear many complaints anymore, so it’s possible they’ve become much better.

  5. @Blitzkrieg: I’ve used TSX: RIM and NASDAQ: RIMM in the past. It’s a volatile stock though. POT is another option. You can find a full list of inter-listed stocks here:

    http://www.superstockpicker.com/canadian_US_stock_symbols.html

    I found this through the Norbert Gambit FinWiki page:

    http://www.finiki.org/index.php?title=Norbert%27s_Gambit

  6. I wonder if the same achieved for a TDW RRSP can be done at the TDW non registered trading account? e.g. by the TSX listed shares, sell them in the US side and then call to wash the trade.. could that be doable? or they would reject such wash it since there is a USD non registered account and I could have journaled the shares without selling?

  7. I just used RY for a NG yesterday, to take advantage of a good exchange rate. (not in a registered account though)

    This calculator :http://www.northernraven.ca/financial/NGcalculator.php
    was put together by NorthernRaven and is very useful if you want to pick and choose a stock to get just the right amount transfered. I think POT isn’t ideal, since you could get stuck with 179$ (ie, just not quite enough for one more share) unconverted. I chose RY for liquidity, and also because if something went wrong and I was stuck with the shares, I’d be “ok” hanging onto them for a while. (RIM and POT I wouldn’t want to hold).

    I was doing this in a BMO investorline account and everything went well.

  8. I have a TD Waterhouse unregistered account and it is all cash–and don’t get me going about the 5 months it has taken to finally be able to execute a trade!

    Anyway, I want to allocate my cad cash into various us and cad securities.

    Obviously, I want use the NG to convert my CAD$ into USD. So, I planned a test: buy 19 shares of RY-T, approximately $1,000 and $9.99 commission. Then, sell 19 shares of RY-N (NYSE).

    Well, the system executed my first trade, the purchase, but when I tried to do the wash trade, the sell, the system told me I did not have any stock to sell, and rejected the trade.

    @BC Doc reports success, but that was with RBC DI.

    Anyone done the NG with an unregistered TDW account?

    I might have to call TDW, but I am in Thailand for an extended period and would just like to do things online.

    Any advice welcome.

  9. @Antonio, @Alien: Yes. You can do a NG in a taxable investment account. However, you have to call after your buy order, request a journal over to the USD account and *then* sell the US security. I’ve heard reports of CSRs asking clients to wait until the order is settled before journaling over.

    I’ve done the NG in taxable accounts a couple of times at TDW. They always agreed to journal over and sell immediately. YMMV though. I’ve written about the Gambit in taxable accounts in this post:

    http://www.canadiancapitalist.com/save-on-canadian-dollar-to-us-dollar-conversions-and-vice-versa/

    It appears the best way to ensure an error-free NG in TDW taxable accounts is to short first and then buy the stock and request a journal over to cover the short. I haven’t personally done this but plan to. I’ll report my experience when I have a chance to do that.

  10. Hi CC. Regarding the USD ETF purchases in my RBC RESP account, in retrospect I wonder if I could have used NG and instructed the broker to deposit the USD sale proceeds directly into a USD money market fund (RBF1003 at Royal Bank). My USD ETFs would then be purchased directly using the money market fund.

    Thoughts/comments anyone– might this have worked?

    Thanks.

  11. @Canadian Capitalist. So I shorted CAD$100K of POT on the NYSE after buying $100K worth, well not exactly, on TSE. Then I phoned Ground Control at TDW and asked them to “wash the trade” and leave the USD in my USD Margin account.

    Oh no, she said, you did it wrong. We don’t do that.

    I said I didn’t want to be short on anything, and quoted remarks on CC’s blog.

    “I have to check,” she said scurrying away to get the next level’s adjudication.

    When she came back, I told her: “Honey [yes, I am a male chauvinist], I have an MBA in finance and marketing and know the difference between a debit and a credit. Then I quoted her BC Doc’s remarks above.

    So, if you cannot do it, I will move my 7 figure portfolio–which has, incidentally, been stuck in cash for three months despite my going to the TD branch–head office sent some nubile thing to convince me that TD can manage my money for 1.35% commission–I said that works out to a million dollar commission for you with no risk; I can count, thank you.–said commission is Present Value of getting raped for 20 years+.

    “Why don’t I just use ETFS?” I queried.

    “Oh, ETFS!” she replied but never explained anything. And never talksw to me nor responds to my emails about all the problems I have had at TD.

    So, meanwhile, the TDW lady on the phone… “Well, you can always call us if you want to do what you wanted to [NG].”

    Then, I said, “Honey, you don’t get it, I am going to report my experience all over the web.”

    “No, Mr. Alien, we can do that manouverer but you might call us first,” she said.

    “I am lazy and just want to do everything from the web. Besides, I am in Thailand, so there is a time zone conflict to phone you–besides, I hate the phone!”

    I said take me out out of the short.

    “Mr. Alien, we have reversed everything and we are not charging you commission.”

    I closed with: “Well, you have been quite accommodating and I thank you. Good night from Thailand.”

    Today, they charged me USD250 for fixing the trade–oh, and no commission.

    Jonathan [Cheverau], I want to write an op-ed piece about these people who have had $1.4million of my cash–no, it’s more, the other 65K, personally–and despite visting the branch in August ’10 and explaining what I wanted to do: bundle my personal with one business account–they all failed until two days ago–and I had to make three calls–my account manager swears off anything to do with TDW but accepts my $1.5MM deposit.

    The opportunity cost model is about $70,000.

    And the insolence of the broker: “We’ll reverse the commission [CAD$9.99] on on the trade], but it actually cost me $250.

    Oh well, it could be the basis for a class action suit.

    My personal and corporate solution: I take my money offshore and out of TD and invest through other vehicles.

  12. @Alien: I’ve been with RBC DI since late 2007 and have been very happy with them. Even happier now that the RRSP accounts allow segregated holdings for cash and securities in US and Canadian dollars. With assets over a certain dollar amount, you’re given a priority telephone number for customer service/brokers so time on hold is kept to a minimum. The only account I wasn’t able to use NG in was the family RESP account. Other than this, I would recommend RBC DI to my friends and colleagues who are looking to direct their own investing. Good luck, and yes do vote with your feet– it’s your money. And thank you for the heads up re: TD!

  13. @Alien: NG in a taxable account at TDW requires manual intervention unfortunately. If you buy first, you have to make a call to journal shares before selling. If you sell first (assuming your account is set up as a margin account), you have to make a call to journal shares to cover the short.

    @B.C.Doc: TDW works just fine for me. But I do agree that RBC DI would be a better option because of segregated US and CAD accounts. It is still not a compelling reason for me to switch… unless RBC starts offering one of those 1% to switch deals! 🙂

  14. Has anyone one done NG with questrade?

  15. Is it possible to wash the proceeds of the NG sale directly into a (or a few) US listed ETF(s) rather than parking it temporarily into TDB166? Would this require a buy of the EFT in the same day as well?

    I suppose it is “safer” to park the US$ into TDB166, and then purchase the EFTs at a later date. In this case, do you need to buy the EFTs, manually sell the TDB166, and call to instruct to have the trade washed – or do you just call to instruct them to cover the trade from TDB166?

  16. @GTK: I haven’t done it personally but I have sold a US stock and purchased a US ETF on the same day. TDW automatically sets the buy and sell exchange rate the same, effectively eliminating foreign currency conversions. Essentially the same thing happens with TDB166. The only difference is that stocks settle in T+3 but mutual funds settle T+1, so you have to buy the ETF first and later sell TDB166. I would call TDW just to make sure everything is set up correctly.

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  18. Marathon Gnome

    To Canadian Capitalist:

    Your article implies that there are CAD and USD RRSP accounts at TDW.
    I do not think that TDW offers USD RRSP accounts. Please correct me if I am wrong.
    I have been pestering TDW for USD RRSP accounts for YEARS, to no avail. It’s just a great money-maker for them! I would love to try your NG strategy to thwart TDW.

    Each USD trade that I do at TDW goes through my CAD RRSP account and each time it costs me about 2% above the BoC day rate (noon or close) in addition to the $9.99 commission. My last few trades cost me an extra CAD 50.00 to 135.00 (approx.) per trade – very annoying.
    FYI: The Bank of Canada site: http://www.bankofcanada.ca/en/rates/exchange-look.html provides all the historical information one needs on daily foreign exchange rates on all currencies

    I am thinking of moving some of my managed RRSP accounts to a discount broker who offers USD RRSP accounts – any suggestions? Maybe, RBC DI?

  19. Marathon: TDW doesn’t offer USD RRSPs, but call them and ask them to set you up to “wash” trades.

    It’s not automatic and a colossal pain in the xxx to manage, but you don’t pay exchange on US stock purchases. Make sure you get them to explain the whole process.

  20. Marathon –

    I am looking at OptionsXpress right now.

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