discount brokerage account

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If you’re planning to open a discount brokerage account, here is information that may
help you avoid unpleasant surprises.

Discount brokers (or dealers) are firms that act as intermediaries in securities
trading. In other words, they are firms through which you can buy or sell stocks,
bonds, mutual fund units, or other securities—but they will not provide any advice on
the purchase or sale of these securities. Discount brokers must be registered with
the Autorité des marchés financiers (AMF).

Make sure your discount broker is registered with the Autorité des marchés
financiers (AMF).

Discount brokers carry out trade orders for lower fees; this is their main advantage.
However, fees may vary from one discount brokerage to another, so be sure to
confirm all the fees that will apply to your account, and compare them to the cost of
doing business with a full service brokerage. Unlike discount brokerages, full service
brokerages provide advice on the purchase or sale of securities.

Since you won’t be receiving any advice about buying or selling securities, you’ll
need to have a basic grasp of financial investing. For example, you should know how
to read financial statements of companies whose shares you intend to buy. As well,
you will need to establish your investment objectives and risk tolerance in order to be
able to determine suitable products.

Do you have the basic knowledge needed to make informed investment decisions?

If you use a discount broker, you’ll need to spend time on researching investments
that you own or want to purchase. You will constantly have to monitor information
that might affect the value of your holdings. Whether your returns are positive or
negative, this is quite important because you’re the one who will be making the final
    Do you have enough time to research the investments you own or the securities
    you want to purchase?

Information from discount brokers

The information provided by discount brokers should be checked systematically
before you buy or sell securities. For example, if a company is under reorganization,
you’ll need to fully understand how this will affect its shares. Discount brokerage
firms are not responsible for notifying investors or suspending trading of company
shares in order to protect investors.

Many discount brokers post information on investments and markets on their
website. Just because information is posted on a brokerage company’s website,
there’s no guarantee it’s correct or complete. Nor do discount brokers necessarily
endorse the opinions they pass along. Consult a number of information sources
before making a transaction.

    Check for the latest information before buying or selling securities.


Authorizing a third party (proxy) to manage your discount brokerage account can
have serious consequences. Before enlisting a proxy to manage your account—even
someone who appears competent and trustworthy, a friend, a relative—be aware of
the authority that you are granting to a proxy.

Before you authorize a proxy to make transactions through your account, you should
know that:

      •   A proxy may give instructions to buy or sell your shares (buying on margin or
          selling short 1 if your account allows such transactions).
      •   Transactions carried out by a proxy will be made in your name, as if you had
          carried them out yourself. The broker will consider such transactions to have
          been approved by you.

 Selling short means selling shares you do not own. Short sellers expect shares to lose value and
become available for purchase at attractive prices. This can be a very risky investment strategy.
If you grant full authority over your account to a proxy, he/she may, in addition to
buying or selling shares:

   •   Withdraw money from your account.
   •   Receive transaction statements, notices, and requests addressed to you.
   •   Take action in your name on matters relating to your account.

Be careful!

   •   The broker will not keep you informed of actions taken by the proxy—it’s up to
       you to ensure supervision.
   •   You will be fully responsible for the proxy’s transactions and actions.
   •   You will need to reimburse costs incurred by the proxy, whether due to losses,
       errors, or negligence. If you have authorized short selling, amounts could be

Remember that any person who expects compensation in return for financial advice
or service as an investment intermediary must be registered with the AMF.

Have you fully assessed the consequences and the risks associated with
assigning the management of your account to a proxy?

Client agreements

Client agreements are sometimes separate from account opening forms. Take the
time to read your agreement, and be sure you understand it. Among other matters, it
sets out what the broker can do if your account is short on funds. The discount
broker may decide to sell your shares to cover amounts due.

Your account agreement can also specify that your broker may accept or refuse a
transaction order and that, in certain situations, the broker may debit your account
and place a hold on funds. Signing the account opening form means you accept the
conditions and responsibilities under the agreement. Make sure you understand the
account opening form and the related account agreement.

Are you familiar with your account agreement?

With respect to Internet-based transactions, never share your password with
anyone—you could be responsible for losses incurred as a result of access granted
to your account.
Even in the case of a friend, family member or professional colleague who appears
to be trustworthy, granting access could lead to unfortunate consequences.

For more information, see our brochure Watch Out for Securities Fraud.

What should you do if you have a disagreement with your discount broker?

When reviewing your account statement, you note that a transaction was made
without your approval. Check the recent data on the securities in question. Was there
an offer to buy the company? Did your discount broker, as per your service
agreement, sell any shares to cover a shortfall in your account? Consult your
account agreement again.

Whatever the circumstance, call your discount broker for an explanation. If the
problem isn’t resolved quickly, contact a manager, supervisor, or representative of
the firm, preferably in writing. Some brokerage firms have an ombudsman or a
dispute resolution officer who can review the matter.

If the situation is not resolved, contact the AMF. You can ask for your complaint file
to be transferred to the AMF. It will be analyzed and you will be offered assistance to
settle the dispute. You may decide to retain legal counsel at any time during this

For further information, see our brochure, Choosing a Securities Firm and

Toll-free: 1 877-525-0337

November 2007

The Autorité des marchés financiers (AMF) is providing the above for information purposes only. The
figures do not represent any particular fund. It does not give any advice on the purchase or use of any
specific financial products or services.

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