Norbert’s Gambit Catch at BMO InvestorLine
My most recent currency exchange using the Norbert Gambit seemed to go off without a hitch. I bought Royal Bank shares in Canada with Canadian dollars and then sold Royal Bank shares in the U.S. to get U.S. dollars. Two weeks later, all looked fine. But I was eventually hit with an interest charge.
Here is the sequence of events. I made the trades one day, and the trades settled three business days later. But it wasn’t until one business day (3 calendar days) after settling that InvestorLine’s systems wiped out the positive number of shares on the Canadian side of my account and the negative number of shares on the U.S. side. So far, so good.
However, InvestorLine’s system decided that I was short the U.S. shares for the three calendar days it took to flatten the positive and negative numbers of shares. At 21% interest, shorting for three days produced a charge of over US$90. The worst part, though, is that interest charges don’t show up in my account until about the 21st of each month. In this case, the interest charge appeared over 4 weeks after I made the trades.
When I called InvestorLine, the representative immediately said he’d reverse the charge. But this isn’t good enough in my opinion. I noticed the charge mainly because my account showed a negative amount of cash. If I had looked a few days later after receiving some dividends, I might not have noticed at all.
When I asked what went wrong and whether I could expect such interest charges again (this happened once before, but I thought it was an isolated mistake), the representative told me that this was a limitation of their system. If I “ever try this again,” I’ll have to call again to get the interest charge reversed.
I’ve heard from many readers that they do currency exchange with Royal bank stock and other stocks without any problems. I’d suggest that these readers go back and check for interest charges up to a month or so after the trades. If any readers go back to check, please let me know your results.
Here is the sequence of events. I made the trades one day, and the trades settled three business days later. But it wasn’t until one business day (3 calendar days) after settling that InvestorLine’s systems wiped out the positive number of shares on the Canadian side of my account and the negative number of shares on the U.S. side. So far, so good.
However, InvestorLine’s system decided that I was short the U.S. shares for the three calendar days it took to flatten the positive and negative numbers of shares. At 21% interest, shorting for three days produced a charge of over US$90. The worst part, though, is that interest charges don’t show up in my account until about the 21st of each month. In this case, the interest charge appeared over 4 weeks after I made the trades.
When I called InvestorLine, the representative immediately said he’d reverse the charge. But this isn’t good enough in my opinion. I noticed the charge mainly because my account showed a negative amount of cash. If I had looked a few days later after receiving some dividends, I might not have noticed at all.
When I asked what went wrong and whether I could expect such interest charges again (this happened once before, but I thought it was an isolated mistake), the representative told me that this was a limitation of their system. If I “ever try this again,” I’ll have to call again to get the interest charge reversed.
I’ve heard from many readers that they do currency exchange with Royal bank stock and other stocks without any problems. I’d suggest that these readers go back and check for interest charges up to a month or so after the trades. If any readers go back to check, please let me know your results.
It's not a limitation, it's design. Bankers are bandits in suits. Good thing is, like all shady characters, they do not like publicity.
ReplyDeleteWhen I was rearranging my funds last year towards TD's webbroker, TD's brick and mortar offices went out of their way to make the transaction difficult; the process took several months instead of several weeks. The delay caused lost gains. I presented them with the calculation and they agreed to pay me out to a cent to avoid the noise.
@AnatoliN: Whether this is a limitation or a design, I agree with you that publicity might add some incentive to fix the problem. It sounds like you did a good job of getting what you wanted from TD.
DeleteGiven the low MERs of newer Canadian-listed ETFs, I don't see the point, anymore, for playing the currency exchange game.
ReplyDelete@Anonymous: That's certainly one way to go to keep things simple. Be sure to add withholding taxes on dividends to the MER of these Canadian-listed ETFs before comparing them to the U.S. ETFs. I find the difference to be significant enough myself to stick with the U.S. ETFs.
DeleteGood advice. While I am not convinced that all bankers are bandits, the onus is still on the customer to avoid paying unwarranted fees.
ReplyDeleteWhen I performed the gambit at RBC DI they never charged me any interest. Their system seems to be able to handle the settlement via journaling over. I never had to call anyone to make things right.
@Anonymous: There are some asset classes not well represented in Canadian ETFs (e.g. emerging market equity, international real estate). Also, in an RRSP, holding US based ETFs avoids paying US withholding tax. You would have to pay this with a Canadian ETF holding the US equivalent and, in an RRSP, could not deduct it.
@Holger: As far as I'm aware, this is only a problem at BMO InvestorLine. As for whether bankers are bandits, it's all in how you define "bandit". One thing to keep in mind, though, is that you rarely ever see a banker in a bank branch. For the most part, workers in branches just do what the computers tell then to do. As with other businesses, the trend for many years has been to chip away at the discretion of lower-level employees and control ever finer-grained policies centrally.
DeleteI don't think the problem is unique to BMO. It exists in RBC direct investing as well. The reason why Holger probably didn't get hit with a charge is because the interest charge may be less than a threshold. I am a RBC DI customer and have been hit with these charges and as Michael had experienced they come in late. In a few cases, it wasn't until several months later I discovered these charges. In all cases RBC reversed these charges when it was brought to their notice.
DeleteAside, I will not characterize this banks trying to fleece customers (full disclosure: I work for a bank). The trading platform needs to have the capability to differentiate between short sellers and Norbit Gamblers. The banks are unlikely to build it until the cost of reversing is more than the cost of building it in the platfrom. This is unlikely to happen because of the small number of users who use NG.
@My 2 Cents: With very little data, a theory is that BMO only has problems in registered accounts. Perhaps it's the same at RBC?
DeleteI agree with you that the banks are driven by pragmatism.
I've never had this happen with Investorline myself, and I've performed a NG roughly a dozen times in the past year. I've checked my transaction log and no interest has ever been charged. Strange.
ReplyDelete@Dave: I'm trying to imagine what you might be doing differently from me that makes the difference. I've done my gambits in an RRSP. Perhaps RRSPs and other accounts are handled differently?
DeleteThat could be it. I've only ever done it in a non-registered account. I also take care to ensure there's no stock market holiday on either side of the border for at least 7 business days post-trade (but I'm sure you've thought of that already).
Delete@Dave: I learnt about the holiday catch from Canadian Couch Potato. I haven't been caught by that yet. Perhaps we're zeroing in on the problem. Maybe BMO InvestorLine can't do Norbert Gambits properly in registered accounts.
DeleteI've had this happen to me in both my registered and non-registered BMOIL accounts. The transactions have to be large enough to result in an interest charge of more than $5 for the month. I was told that it was a system flaw and a call or email would result in the charge being reversed. I have asked about having the position netted sooner, but it's never happened. So, I've resolved to check my online transactions on ~25th of the month to make sure I'm not charged interest -- and if I am, I fire off a couple line e-mail to have them reverse it -- which they always do.
Delete@Anonymous: Thanks for the information. This $5 threshold explains why some people report having no problems at all. I'll be watching closely from now on.
DeleteHey Michael,
ReplyDeleteQuick question. Do you perform Norbert's Gambit online or through a telephone call?
http://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/PWL_Bender-Bortolotti_Norbert-s-Gambit_BMO-InvestorLINE-RRSP_v06_hyperlinked.pdf?ext=.pdf
This site tells me that I have to pick up my phone to get the shares sold in DLR.U. How do you perform it?
@Rajh: The first few times I did a gambit I used DLR and DLR.U. I had to call to trade the DLR.U. However, the last few gambits I used Royal Bank stock (RY in both Canada and the U.S.). I didn't have to call to make the trades. However, I have had to call a month later to get interest charges reversed.
DeleteThanks for the reply, Michael!
DeleteI think the RY method would work for me. I am opening a TFSA account, so I don't know if I can trade the DLR ETF through that or if it's just for stocks. I'll see how it goes.
I have been with Investorline for over 15 years and lately it has been nothing but problems. In the past year their service deteriorated to the level of totally unacceptable. Most problems are with online access and underlying trading system. Here is the list of problems, some of them are extremely critical:
ReplyDelete1. Poor security. Online login to your account takes maximum password size of 6 characters and the passwords are not even case sensitive. Any teenage hacker can break-in to your account in less than 10 minutes. Trading passwords are more secure, but I am still uncomfortable that it is so easy to access client's holdings - to me it's a big privacy issue. I raised this issue with IL over 3 years ago and they told me that this will be fixed soon - nothing is done as of Jan 2015.
2. Overloaded servers. Try to login to your account around 9:30am or 4pm. It takes 2-3 failed attempts (with very "informative" errors like "The proxy server did not receive a timely response from the upstream server. Reference #1.ec2bf648.1422285118.ef29fd99" or "We're sorry. The page you are looking for is currently unavailable. Please try again."). This morning I couldn't login to my account for 25 minutes. Even with successful login it takes up to 3 minutes delay until you finally see your portfolio page. Finally, you often get disconnected after just a few minutes - I guess it is because their servers cannot handle that many simultaneous connections. In response to my complain I received this email response from IL support: "our investigation shows that there was no issue related to slower than normal website responsiveness"
3. Speaking of customer support it is very bad. Half of the traders you reach on the phone barely speak English. When I reported some of the problems in my emails to support - the answers I received were either inappropriate (e.g. "we cannot confirm your complaint looking at our server logs) or plain ignorant ("May be you should try another browser?", "Close the session and login again, it may help")
4. What scares me most about being with IL is how buggy is their software. Even with such simple things like calculations of totals for market value and unrealized gains/losses. The numbers I see on my portfolio page often don't correspond to reality - I have to manually export my portfolio page to Excel to get correct numbers. This problem is intermittent, but it occurred to me at least 4 times in the past month.
5. In one of my accounts I actively trade in options and in the past 3 months I encountered at least 5 days when I would not be able to see bid and ask for all my options for hours. Suddenly, all bid and ask values go to zero and even when you click on the option to trade you get zero values in trading screen. As you can imagine, this is totally unacceptable for options trader as you are unable to trade without knowing what the bids and asks are. I just love the answer I got from IL support (the screenshot was taken at the middle of the trading day and showed zeros for 15+ options, including GOOG, BX, CNQ, ENB, etc.): "With reference to the screenshot you had provided, the prices were reported accordingly as the option holdings had $0.00 bid".
At this point I had enough and will be moving to another discount brokerage. It is too bad as IL used to be the best in Canada. I don't know who re-designed their interfaces a couple of years ago), but apparently it was designed and maintained so badly that they can no longer provide service to clients and they are obviously unable to fix these problems.
@Anonymous: I have to say that my experience has been very different from yours. I'd like longer passwords, but I'm not sure how vulnerable they are -- it depends on whether there is a way to check many password guesses without getting locked out. I haven't had problems with login times or calculation errors, and I've had excellent service when calling them. I don't trade particularly frequently, but I haven't encountered the issues you describe. I guess the good thing about competition is you get the chance to look for a discount broker you like better.
Delete