ATTENTION! The article by Scott Adams is included here! I'd like to take this opportunity to thank Scott for doing a fine "well-balanced" assessment of our problems! Hopefully this may speed the process, until then I guess we just "vent"!!
Thanks Scott
the Chief...."who has been outed"
aka Dennis Bremner
Traders Say Regulation Is Slowing Pace Of Activity
By Scott Adams
TORONTO (Dow Jones)--Day-traders are investors who like to move at top speed, but many Canadian day-traders believe they are stuck in the slow lane because of a trading rule.
Some investors engaged in day-trading in Canada through a discount broker feel hampered by a rule requiring that each trade be checked by a human eye, and are clamoring to have the rule changed.
Last month, a committee of Canadian discount brokers applied to regulators to have the rule changed. The hope is that the change will enable Canadian discount brokers to compete more effectively with U.S. discount brokers, who are taking away some Canadian business.
Day-trading is a relatively new but growing phenomenom. Day-traders make frequent trades, usually from home, often using Internet tools, trying to profit on short-term movements in stocks. Day-trading has taken root in the U.S., as the Internet has given the average person the power, and the access to market information, to make trades from his or her kitchen table.
But day-trading through Canadian discount brokers is slower and more
expensive than through U.S. discount brokers. Part of the problem is that Canadian shops must abide by "know-your-client" rules, which means that a human eye must check a client's investor-risk profile before executing each and every trade. The check adds 10, 15, 20 or maybe 30 seconds to the time it takes to fill a trade.
However, for an active trader, seconds are precious.
The U.S. doesn't have the same human-check rule for discount brokers.
Meanwhile, the "know-your-client" rule forces Canadian discount brokers to hire whole groups of workers to vet each trade, which drives up the cost of trade fees. To make matters worse, there is little to stop Canadians from signing up with U.S. discount brokers. "It makes us uncompetitive to U.S. dealers," said Colleen Morehead, president of ETRADE Canada, an independent discount broker in Toronto.
No one knows how many Canadians have signed up with U.S. discount brokers. In any case, change won't happen quickly. With no central organization for investment regulation in Canada, any regulatory changes must have the approval of provincial governing bodies, Canadian stock exchanges and the Investment Dealers Association of Canada.
Changing the human vetting rule might take months or "in excess of a year," said Paul Bates, president and chief executive of Priority Brokerage, another Toronto independent discount broker. "But I think it will happen and I think it will happen in stages," he added.
2: Investor Protection A Factor
Change might happen in stages because one of the first steps of deregulation could be for a sell order to no longer require human vetting. The "know-your-client" rule comes from a time not too long ago when investors had to deal with brokers to execute all trades. The rule was there to protect the client from bad advice, such as sinking his or her life savings into highly speculative stocks.
Discount brokerages arose from the need to provide cheap trades to investors who feel informed enough about investing and the market that they don't need a broker's advice.
In Canada, the discount brokers are subject to the same rules as those offering full brokerage services, even though their clients aren't going to discounters for advice. "They're only paying for order execution," said Bruce Schwenger, president of Bank of Montreal's (BMO) InvestorLine discount brokerage.
When Canadian investors sign up with a discount broker, they must fill out an investor profile, which asks them to state whether they are speculative or conservative, and experienced or inexperienced. As a client orders a trade, a customer service representative receives the trade request via phone or computer. The client's investor profile automatically pops up on the rep's screen and the rep checks it for trade suitability, as well to make sure the client's account is in order. The process usually takes 15 to 30 seconds and is one that Canadian discount brokers would like to see more automated. A computer could flag problem trades for reps to deal with. According to discount brokers, a sell order could be automated because it's by nature the most conservative move an investor can make, that is to turn a stock into cash.
Some discount brokers say speculative or experienced investors, often day-traders, should be able to sign their risk-profile so that they can bypass the human vetting procedure. But change may take a while because regulators will be careful in changing a rule that has long protected Canadians, said the Investment Dealers Association
of Canada's senior vice-president, member regulation, Gregory Clarke. "This is a fairly major step and while it has been taken in other places in the world, it won't go away without some sort of struggle because there certainly are a wide variety of views," Clarke said.
Part of the problem lies in defining exactly what constitutes advice and what the responsibilities of full and discount brokers are, he said. Regulators are considering a whole host of other fundamental changes to the investment industry in Canada, so their hands are full now.
3-Seek Level Playing Field
Meanwhile, U.S. discount brokerages are scooping up business illegally by offering security services to Canadian residents without a license, the Investment Dealers Association of Canada's Gregory Clarke said. There isn't much chance they will be stopped, he added.
Canadian authorities would need the help of U.S. authorities to prosecute a U.S. discount broker offering services to Canadians, and authorities have bigger issues to deal with these days, Clarke added.
Some Canadian day-traders are frustrated. Silicon Investor is an Internet site where investors chat online about investing. The site has a "Day-trading in Canada" section on which several participants recently "vented" about slow trading times. "Why am I putting up with this, (sic) I'm trying to trade online with one hand (figuratively speaking) tied behind my back," wrote a participant with the moniker "gypsy."
Dennis Bremner, who uses the moniker "the Chief," is discouraged with his bank-owned discount broker. "I've ended up losing money on time," he said.
Many of the complaints have been about the bank-owned discount brokerages, which are larger than their non-bank-owned counterparts. Problems cited include slow trades, especially during peak periods, poor customer service, and Internet site problems. Some investors have turned to full-service brokers, some of which are offering quick trades and steep discounts off full commissions.
It's hard to judge how widespread the complaints are. The Canadian discount brokerage industry is still young and growing and some of the problems might be isolated.
Steve Sparrow, central Canada manager for Toronto Dominion Bank's (TD) Green Line Investor Services, said 80% of a discount brokerage's revenue can come from about 20% of its clients. Many of the discount brokerages offer "preferential accounts" for the most active traders.
How much would Canadian commissions come down if the rules changed? It's hard to say. Part of the reason U.S. discount broker fees are low is linked to sheer volume. U.S. discount brokers are also able to earn revenue from sources that Canadian brokerages don't have access to, such as market flow fees, which has to do with fees earned from market-makers. But changing the human vet rule would help, discount brokers say. "The important thing is to keep the business in Canada," said Mike Bastian, president and chief executive of Royal Bank of Canada's (RY) discount brokerage, Action Direct. "You've got to be competitive. You've got to have a
level playing field."
-By Scott Adams; 416-943-7804; scott.adams@dowjones.ca
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