NYSE Regulation Inc. today announced that it has censured and fined CIBC World Markets Corp. and Nandra Group Inc., US$200,000 and US$75,000, respectively, for supervisory deficiencies in connection with an improper stock loan transaction at below-market rates that deprived a bank and/or its customers of substantial fees and proceeds.

In addition, the NYSE said that Nandra’s principal was censured, suspended, and barred from future securities lending. Also, a disciplinary action has been commenced against a former stock loan trader at CIBC for facilitating this deceit, it added.

“In this case, a below-market transaction that included a sham finder’s fee went undetected because of inadequate supervision, including no review of revealing Bloomberg e-mails,” said Susan Merrill, chief of enforcement, NYSE Regulation Inc. “Firms are again reminded to assess the adequacy of the supervision, control and surveillance of their stock loan departments and their personnel.”

The regulator said that CIBC’s supervisory policies and procedures with respect to its stock loan business were deficient to prevent and/or detect its trader from engaging in below-market transactions and from knowingly entering incomplete and inaccurate stock loan transaction terms on its books and records. The Bloomberg messaging system was not required to be reviewed even though the firm’s traders and their counterparties used it to discuss stock loan transactions, including the loan that gave rise to these proceedings.

Also, it said Nandra had no written operations or supervisory procedures concerning stock loan transactions, nor any procedures for the supervision of a finder at the firm. It did not have any written agreements with any counterparties defining the services to be provided as a finder. It found that the firm’s principal conducted inadequate due diligence to ensure that the loan was effected at a fair market price. He also failed to ensure that the payment to Nandra as a finder was reasonable and consistent with market standards.

The Hearing Board Decision noted the full cooperation given by CIBC to NYSE Regulation’s Division of Enforcement during its investigation. In settling these charges brought by NYSE Regulation, CIBC World Markets Corp., Nandra Group, Inc. and its principal neither admitted nor denied the charges. Disciplinary proceedings are pending against the former CIBC stock loan trader.