U.S. laws do protect Canadians with accounts south of the border
The Myth About Cross-Border Trades
unclehughie's Online Investor Column
As published in the National Post October 6, 2001
By Hugh Anderson
As Canadian securities regulators hunt down the few remaining U.S. brokers dealing with Canadian clients, they justify the arduous campaign with ominous hints about the risks of opening an account south of the border.
Most notably, they suggest Canadian investors might not be protected under U.S. regulations in the event of a failure of a U.S. firm.
This, to put it politely, is self-serving propaganda. The U.S. rules do not distinguish between residents and non-residents.
They apply to anybody doing business in the U.S. markets with registered U.S. brokers.
"If you have an account with, say, Merrill Lynch, and it goes under, it doesn't matter if you live in Canada," says Kenneth Caputo, associate general counsel with the U.S. Securities Investor Protection Corp.
SIPC was created by the U.S. Congress in 1970 to protect investors with "assets in the hands of bankrupt and otherwise financially troubled brokerage firms," according to its Web site (www.sipc.org).
"Canadians are not precluded from participating in U.S. class action suits related to stocks that trade in U.S. markets," according to Mark McNair, a Washington-based lawyer.
"The issue is whether the trades that are the subject of the dispute were done in the U.S. market."
McNair "represents persons who have lost money as a result of corporate fraud or other corporate misdeeds through class action lawsuits and shareholder derivative suits," according to his Web site (www.justice4investors.com).
He was formerly a lawyer in the market regulation division at the U.S. Securities and Exchange Commission.
Asked why Canadian regulators allowed a mistaken impression to linger, Wayne Alford, director of enforcement at the Alberta Securities Commission, said nobody ever brought it up.
He denied the campaign was about protecting turf.
The Alberta agency is currently spearheading the campaign on behalf of all the Canadian securities commissions.
"We want any brokers doing business in our capital markets to be registered here so that we can go after them here if they misbehave and remove them from our market.
"Alberta's capital markets are best policed in Alberta. It's very important to me to be able to act here, and not have to go cap in hand to the SEC to ask them to put the issue on their agenda," Alford said. "If people were to come and ask us for an exemption before taking on Canadian clients, and show us that the U.S. rules would provide equivalent protection in all circumstances, that might be a different story. But nobody did."
Meanwhile Canadian clients of a U.S. pioneer of direct-access trading, CyberTrader Inc., were scrambling this week to meet an indecently short deadline -- yesterday -- to transfer or close down their accounts.
CyberTrader, originally independently owned, is now owned by Charles Schwab & Co. The firm says Canadian clients can transfer their holdings to Schwab's Canadian arm at no cost.
Paul Bates, Schwab Canada's president, said his firm is "beefing up" an arrangement with PCQuote to offer a similar direct-access service, although he acknowledged it would not have all the capabilities of CyberTrader's service. Schwab Canada also charges higher trading commissions.
Direct-access brokers such as CyberTrader enable active investors to route their orders from their own computers directly to the various available markets and get almost instant execution. The only alternative now available to Canadian investors is Montreal-based TradeFreedom Securities (www.tradefreedom.com), which recently joined the Investment Dealers' Association of Canada.
The Canadian firm recently cut commissions to comparable levels with CyberTrader. Direct-access brokers are not for buy and hold investors.
They cater to clients who trade frequently, although not necessarily several times a day.
They want to know what's happening in the stock market as it is happening, and in search of the best price they want the ability to choose where their orders are executed.
TradeFreedom's service provides this, but so far it does not provide every feature available to CyberTrader clients. The U.S. firm's package is generally regarded as the most powerful of its kind. It's a great pity that it's no longer available to Canadian investors willing and able to use it. |
