The Investment Industry Regulatory Organization of Canada (IIROC) has fined CIBC’s investment banking subsidiary $150,000 for trading supervision failures that compromised the market, an IIROC hearing panel said in a settlement agreement dated March 20.

Investment dealer CIBC World Markets Inc. failed to comply with its trading supervision obligations between September 2019 and July 2020, the agreement said, when the dealer didn’t identify and stop orders by a direct electronic access (DEA) client that interfered with “fair and orderly” markets.

In 2019 in response to inquiries from IIROC market surveillance, the investment dealer had conducted an internal review of order entry activity by a certain trader with the DEA client in question.

The dealer found that the trader was “pinging” the market: entering orders and quickly deleting them during the market’s pre-open session as a way to “discern whether existing orders are market or limit orders, at which levels liquidity exists, and what price might be most advantageous to trade at market open,” the agreement said.

CIBC filed a gatekeeper report with IIROC and restricted the trader from routing orders ahead of market opening.

However, during the course of IIROC’s investigation, the regulator identified what appeared to be similar order entry activity by a different trader.

CIBC World Markets “had an obligation to make appropriate inquiries to satisfy itself that similar order entry activity by the same DEA client through a different trader did not raise the same concerns,” the agreement said.

While the dealer ultimately analyzed the trading and concluded it was materially different than that of the original trader and didn’t raise the same concerns, “this investigation was only taken after [IIROC] staff commenced its own investigation,” the agreement said.

The firm has since implemented remedial supervisory measures to identify, review and, if required, prohibit such trading activity, the agreement said.

In addition to the fine, CIBC World Markets must pay costs of $15,000.