Starlight Investments Capital LP and Stone Asset Management Limited
Headnote
Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individual to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition for a limited period of time.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
June 21, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF STARLIGHT INVESTMENTS CAPITAL LP (Starlight Capital) AND STONE ASSET MANAGEMENT LIMITED (SAM, and together with Starlight Capital, the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction in paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (the Dual Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Michael Giordano (the Representative) to be registered as an advising representative of each of Starlight Capital and SAM (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
a) the Ontario Securities Commission (OSC) is the principal regulator for this application; and
b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in each province of Canada (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
The decision is based on the following facts represented by the Filers:
1. Starlight Capital is a limited partnership formed under the Limited Partnerships Act (Ontario) and is registered as an exempt market dealer and a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec, and Saskatchewan, and as an investment fund manager in Newfoundland and Labrador, Ontario and Québec. The head office of Starlight Capital is in Toronto, Ontario.
2. SAM is an indirect wholly-owned subsidiary of Starlight Capital. SAM is registered as a restricted dealer in Alberta, British Columbia, Manitoba, Ontario and Saskatchewan, as a portfolio manager in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Québec and Saskatchewan and as an investment fund manager in Newfoundland and Labrador, Ontario and Québec. The head office of SAM is in Toronto, Ontario. SAM currently performs its registrable portfolio management services through two registered advising representatives.
3. SAM is the investment fund manager and portfolio manager of Stone Covered Call Canadian Banks Plus Fund (to be renamed Starlight Canadian Financial Services Covered Call Fund), Stone Dividend Growth Class (to be renamed Starlight Dividend Growth Class), Stone Dividend Yield Hog Fund (to be renamed Starlight Enhanced Yield Fund), Stone Global Balanced Fund (to be renamed Starlight Global Balanced Fund), Stone Global Growth Fund (to be renamed Starlight Global Growth Fund), and Stone Growth Fund (to be renamed Starlight North American Equity Fund) (collectively, the "Stone Funds"). SAM also provides discretionary investment management services to high net worth individuals through SAM's private wealth management business ("SAM Private Wealth").
4. Since SAM is a wholly-owned subsidiary of Starlight Capital, each such entity is an affiliate of the other and are affiliated registrants.
5. SAM wishes to assign to its affiliate Starlight Capital (i) the investment fund management and portfolio management duties related to the Stone Funds (the "Change of Manager") and (ii) the portfolio management duties related to SAM Private Wealth (the "Private Wealth Assignment"). It is currently expected that the Change of Manager will be effected on June 21, 2023, and the Private Wealth Assignment will be effected later in 2023.
6. Michael Giordano is a resident of Toronto, Ontario and is a registered advising representative (portfolio manager) in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Québec and Saskatchewan. Michael Giordano is also the Vice-President and Senior Portfolio Manager of SAM. As Vice-President and Senior Portfolio Manager at SAM, Michael acts as portfolio manager in respect of the Stone Funds and for all of the SAM Private Wealth clients.
7. SAM's other registered advising representative (portfolio manager), Sean Tascatan, acts as portfolio manager in respect of the Stone Funds. He has no inolvement with or responsibilities related to SAM Private Wealth. Upon the Change of Manager, Sean Tascatan's registration will be moved from SAM to Starlight and his role as portfolio manager of the Stone Funds will remain unchanged.
8. The Filers require the Representative to be dually registered with both SAM and Starlight Capital for a prescribed period of time in order to facilitate the orderly winding up of SAM's business operations. The Representative's dual registration will permit the continued services to the Stone Funds through Starlight Capital and to SAM Private Wealth clients through SAM until SAM surrenders its registration. The Exemption Sought is time-limited.
9. If the Exemption Sought is granted, the Representative will register as an advising representative of Starlight Capital, while maintaining his registration as an advising representative of SAM, during the interim period between the Change of Manager and the Private Wealth Assignment. The Representative will be appointed to the position of registered advising representative (portfolio manager) with Starlight Capital in order to continue to act as portfolio manager of the Stone Funds. The Representative will also be responsible for continuing to provide advice to SAM Private Wealth clients.
10. Starlight Capital requires the investment management capabilities and expertise of the Representative in order to continue portfolio management of the Stone Funds in the ordinary course of business. SAM requires the investment management capabilities and expertise of the Representative in order to continue its management of SAM Private Wealth client accounts in the ordinary course of business. The Representative is in the best position to act in the existing and proposed dual roles with Starlight Capital and SAM.
11. Dual registration would allow the Representative to continue to act as an advising representative of SAM while also acting as an advising representative of Starlight Capital.
12. The terms and conditions, if any, on the Representative's registration as an advising representative of Starlight Capital would be the same as under his advising representative registration with SAM. As of the date hereof, there are no terms and conditions on Michael Giordano's registration as an advising representative of SAM.
13. The Representative will be subject to supervision by, and the applicable compliance requirements of, both Filers.
14. Each of the Filers' respective Ultimate Designated Person will ensure that the Representative has sufficient time and resources to adequately serve each Filer and its clients. Each of the Filers' respective Chief Compliance Officers and management will ensure the Representative has sufficient time and resources to adequately serve each Filer and its clients.
15. Neither Starlight Capital nor SAM is in default of any requirement of securities or derivatives legislation in any of the Jurisdictions.
16. The dual registration of the Representative will not give rise to the conflicts of interest that may be present in a similar arrangement involving unrelated, arm's length firms. The interests of the Filers are aligned, and because the role of the Representative will be the same as his existing role with SAM, the potential for conflicts of interests is remote. Further there is little expected overlap of the business mandates, client base or investment strategies of Starlight Capital and SAM following the Change of Manager.
17. Each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representative and will be able to appropriately deal with any such conflicts, should they arise.
18. There is adequate supervision of any identified potential conflicts of interest to ensure that the Representative, and each of the Filers, can take appropriate measures.
19. The Filers do not expect that the dual registration of the Representative will create any additional work and are confident that the Representative will have sufficient time to adequately serve both firms.
20. The relationship between Starlight Capital and SAM and the fact that the Representative is dually registered with both Starlight Capital and SAM will be fully disclosed to clients and prospective clients of Starlight Capital and SAM, as applicable. The Filers will provide written disclosure to the investors of the funds and accounts managed by each Filer, as applicable, of the affiliated registrant relationship between the Filers as well as the dual registration of the Representative in disclosure documents provided by any affected fund to their investors.
21. The Representative will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.
22. Once the Private Wealth Assignment is completed, the Representative will be a registered advising representative (portfolio manager) of Starlight Capital only and will no longer require dual registration.
23. In the absence of the Exemption Sought, the Filers would be prohibited by the Dual Registration Restriction from permitting the Representative to be registered as an advising representative of each Filer, even though the Filers have controls and compliance procedures in place to deal with such advising and associate advising activities.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted on the following conditions:
i. The Representative is subject to supervision by, and the applicable compliance requirements of, both Filers;
ii. The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representative has sufficient time and resources to adequately service each Filer and its respective clients;
iii. The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representative and deal appropriately with any such conflicts;
iv. The relationship between the Filers and the fact that the Representative is dually registered with both of them is fully disclosed in writing to clients of each of them that deal with the Representative; and
v. The Exemption Sought expires on the date on which SAM's registration is revoked.
"Felicia Tedesco"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission