Canadian securities regulators discourage the practice, but many sophisticated investors are nevertheless using U.S. brokerages. They do so to buy stocks from firms whose commissions are one-third of those charged by Canadian discount brokers and to buy mutual funds which are otherwise unavailable in Canada.

Despite political rhetoric about free trade, the Canadian-U.S. border has been a formidable one for financial services. Securities laws attempt to put hurdles in the way of both investors and brokerages which are not registered in foreign jurisdictions.

But thousands of Canadian investors are thumbing their nose and using U.S. brokers anyway, says Douglas Hart, president of Toronto-based management consultants, Hart & Associates. I was quickly able to locate three Canadians who use these services: "George$," "Bylo Selhi" and "pachyderm"-- all anonymous handles posting to two popular Internet-based discussion forums. For obvious reasons, these users don't want to be identified. Bylo Selhi is a well-known financial commentator and consumer advocate who has built a cult following at the Web forums.

Selhi, who uses a U.S. discounter to buy Vanguard mutual funds, devotes part of his own site (http://www.bylo.org/usmfcan.html) to the U.S. brokerage issue. There, he asks straight out: "Is it legal?"

Yes and no, Selhi says. "I'm not a lawyer, so all I can do is tell you what the regulators have told me."

It is legal, he says, according to the U.S. Securities and Exchange Commission (SEC). Its response to his query was, "There is no restriction under U.S. law barring you from opening a brokerage account with a U.S. broker."

But, according to the Ontario Securities Commission (OSC), it's illegal. It maintains that "a party [dealer/broker] cannot trade in Ontario [which includes trading with someone outside of Ontario] unless he/she is registered as a dealer or an exemption applies."

In practice, there is nothing to stop individual Canadians from going to U.S. brokers, says Greg Clarke, vice-president of member regulation at the Investment Dealers Association of Canada (IDA).

"As a practical matter, I don't think there's any restriction of a citizen on one side of the border doing something on the other," he says. "The real issue is whether a U.S.-based broker should deal with you. A dealer shouldn't deal with an investor in a jurisdiction where that dealer is not registered. To sell securities to Ontarians, the dealer must be registered in Ontario."

So it seems the onus is on the foreign brokers to refuse the business. Thus, for example, Charles Schwab in the United States won't open an account for Canadian residents, says Paul Bates, president of Charles Schwab Canada. Foreign brokers don't want to get in a situation where a client who lost money on trades would attempt to rescind them on the basis they weren't properly registered.

Evidently, some Canadian customers are still falling through the cracks. Cyber-participant "Pachyderm" says he still trades all U.S. and interlisted issues through TD Waterhouse's U.S. operation and Illinois-based Web Street.

In Canada, Pachyderm says he uses E*Trade and TD Waterhouse. "If there's a violation of security rules, it would seem to be by the brokers, not the clients. And since they don't care, neither do I.

"Five years ago, a senior OSC legal counsel [now in the mutual fund business] told me this was the case. At that time, the OSC was actively dissuading U.S. mutual fund dealers from selling to Canadians. A nasty letter was enough to suffice."

George$ is a professor at the University of Toronto who first set up an account with TD Waterhouse in the United States to buy Vanguard funds. George$ holds about $400,000 (US) in a non-registered account. There are no tax strategies associated with the accounts. George$ says he was tired of getting nickelled and dimed by Canadian brokerages.

Apart from executing stock trades at a rock-bottom $12 (US), George$ likes little services like the daily automatic sweep of cash into a better-yielding money market fund. He also finds TD Waterhouse's U.S. Web site easier to watch trades being executed and he likes little perks such as a chequing account and a gold credit card tied to the brokerage account (choice of Visa or MasterCard, no annual charge, plus 1% rebates on purchases).

"It's these little nibbles [in a Canadian brokerage account] that at the end of the day add up to a lot. It's bizarre. Here's an affiliate doing a better job than a parent company, and the [Canadian] unit isn't picking up on it."

George$ suspects the floodgates to widespread U.S. brokerage use by Canadians could be opening, if they haven't already. "It's made possible by the electronic Internet features," he says. "If they didn't have this, I'm not sure I'd be doing it."

Geoff Horrocks, chief compliance officer at TD Securities Inc. in Toronto, says Canadian regulators need to come to terms with the issue and that, ultimately, it's an issue for regulators around the world to grapple.

TD Waterhouse in Canada won't permit U.S. citizens to conduct business with them, but it can't control what Canadian citizens are doing south of the border, Horrocks says, adding that there also are privacy issues to consider.

On the flip side -- foreign residents using Canadian brokerages -- there are similarly grey areas, such as for Canadian snowbirds regarded as temporary U.S. residents. In these cases, "if they have a bona fide pre-existing relationship with a foreign dealer, they're allowed to trade with that dealer," IDA's Clarke says. About half of U.S. states introduced this exemption a year ago.

There also is tolerance of Canadians moving to the United States who have Canadian mutual funds held in registered retirement savings plans, even though the funds may not be registered in the United States.