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.
