Expert: Steven Taylor - 4/1/2008

Question
Do you know if a broker can charge additional fees for purchasing foreign stocks listed on U.S. exchanges? I recently purchased shares in a Canadian company listed in the U.S. on the OTC. In addition to the normal commission, my broker charged me a hefty $75 "International Settlement" fee for entering into a "foreign stock transaction." (I assume I'll lose another $75 when I exit the position.) I thought this type of fee only applied if you bought shares that are NOT listed on a U.S. exchange.

Answer
Rich, I don't know enough details about your particular situation to fully comment on what happened to you, but I can speak in general terms.

Yes, it is not uncommon for a broker to charge extra for a trade in a stock that is not listed in the same country as the broker. This is most common in the United States for foreign companies, particularly Canadian companies, that are not registered with the SEC. Many Canadian companies do not realize that many US brokers cannot or will not buy non-SEC registered stocks for their clients, and of the ones that do, many charge extra, either in commissions or in wider spreads.

For Canadian brokers, it is more likely a case of charging extra due to the greater risk involved. Unless the stock was traded on one of the NASDAQ markets (NASDAQ Global or NASDAQ Capital), the other US OTC markets (OTC Bulletin Board, Pink Sheets or "Other OTC", known as the gray market) are not exchanges. There is a much greater risk for Canadian companies that are only traded in the US, either on the Pink Sheets or the OTCBB (this does not include Canadian companies who are registered with the SEC and are cross-listed, since they have full regulatory oversight). If it is a Canadian company and it is not traded on a Canadian exchange, there is somewhat of a taint of possible shenanigans (i.e, they are avoiding Canadian regulatory oversight), justified or not. There are many Canadian companies traded only in the US OTC market, and only some have had regulatory issues, but problems with that small minority have badly hounded the Canadian brokerage sector. Therefore, most Canadian brokers have changed their policies to deal with this riskier market. The extra fee may be part of that.

My best recommendation to you is to discuss it with your broker and ask them about the fee and see what they can do for you. If you want to continue to trade that market, then I suggest you shop around for a different broker that has lower fees for international trading or no fees at all. No one broker will work for everyone - each has different policies regarding trades, so you may have to hunt around for one that best serves your needs.