James takes a couple days to figure out who Rae reminds him of (Lola!) and has to bite his tongue for the next few months to avoid calling her that.
He does call Rae by her title and salutes her but I don't think it really clicks that he's working with Commander Shepard until Rae
a) breaks out the authoritative Everybody-Quit-What-You're-Doing-Right-Now tone (it got a lot of use in ME2, I tell you what) and tells him to quit arguing after they leave Earth (he mostly just goes :| at this. Kaidan's in the background going o.O. because nothing anybody on the original Normandy did resulted in THAT tone).
b) is absolutely in charge during the Mars mission and tells him to leave twice (and there's a fun bit where she calls him James for the first get-to-the-shuttle order and then shifts to calling him by his rank after he protests at being sent off.)
And then James breaks out the Lola nickname about two days later once he's gotten wrapped his head around the fact that he's working with Commander Shepard and he and Rae have settled into their new dynamic onboard the Normandy. I don't think he would have started using it THAT early if they weren't already friendly due to Rae being on house arrest.
(He does give Tali a new nickname almost immediately after meeting her, but Tali is not his CO.)
I do prefer his explanation for "Lola" to the explanation for "Loco" (which is basically "I've done crazy stuff but the stuff you've done makes me look sane.")
Rae: So I'm a Lola, huh? James: Yeah, my best friend's sister growing up was named Lola. Older sister. Hot. Tough.
It's personal! Shepard reminds him of someone specific! Which I've always read as a compliment and an implication that he's not serious about the flirting and that he'd mostly just gone "Whoa" at the original Lola from a respectful distance but wasn't ever involved with her.
