The Ontario Securities Commission said yesterday it expects a "happy" resolution this month to a national crackdown on Canadians using U.S. discount brokers -- probably by convincing American firms to register in Canada.

For more than 10,000 Canadians trying to decide whether to find more compliant U.S. brokers or to switch to domestic ones, the statement suggests they should sit tight until the OSC makes a formal announcement.

Mike Watson, director of enforcement, says the OSC and its counterparts in the Canadian Securities Administrators are not insisting investors stop dealing with U.S. brokers.

They just want U.S. brokers to register here so their Canadian customers get adequate "protection" as well as cost savings.

Having them register would "create more competition in the market," Mr. Watson added. "If they come in at the price they're charging now it will put lots of pressure on other Canadian firms.

"It's always been our view it was prudent to deal with a Canadian firm. We want [to] balance investor protection with ensuring people have a choice."

That would fly in the face of conspiracy theories presented in Internet discussion forums, to the effect the OSC is in collusion with the Investment Dealers Association and the fund industry to keep commissions and management fees at high levels. One investor wrote: "This is a ploy by an incompetent and inept bureaucracy trying to justify its meaningless existence by appeasing and going to bat for the very people they are supposed to regulate under the pretext of protecting us dumb Canadian investors."

One disgruntled TD Waterhouse U.S. customer, Bob Poole, said the whole episode is "a bit of George Orwell and a banana republic rolled up in one tasty egg roll."

According to one securities lawyer, no U.S. law prevents Canadian residents from opening brokerage accounts in the United States, nor does any Canadian law prevent Canadians from having brokerage or bank accounts in foreign countries. Provincial securities acts prevent unregistered broker-dealers from soliciting residents of a given province, he said, but if Canadian residents solicit a foreign brokerage account to be opened, "there is no provincial or federal law against it, no matter how much the IDA or the OSC puts a spin on any law in Canada."

The OSC's Web site said a party cannot trade in Ontario unless registered as a dealer or an exemption applies. The same applies for Canadians opening Internet-based trading accounts with dealers in other countries.

Because of the confusion, this had been a grey area that was tolerated, at least while the numbers involved were small. John See, vice-chairman of the TD Waterhouse Group, described the laws as "ambiguous at best and therefore we weren't knowingly violating any rules or regulations. They asked us to comply and we've done so."

Toronto-based securities lawyer Philip Anisman thinks the OSC is within its rights to insist on foreign brokers registering here. "This once again demonstrates markets are not limited by borders and interjurisdictional elements and require co-operative regulation and harmonization."

The logical resolution in TD's case would be to have the U.S. unit register in Canada. But Mr. See said that may not make sense either, since the Canadian unit "can deal more effectively with Canadians."