Non-FSA authorised Canadian outfit Swift Trade was slapped with the fine in August 2011 for engaging in 'layering', in which an army of day traders was used to create an artificial market in the prices of shares traded on the London Stock Exchange.

The FSA decision notice described Swift Trade's actions in the markets as a "particularly serious case of market abuse".

Between January 2007 and January 2008, the suspect trading was widespread and repeated on many occasions involving tens of thousands of orders by many traders, sometimes acting in concert with each other from far-flung sites around the world.

The trading "led to a false or misleading impression of supply and demand and an artificial share price in the shares they traded which was to the detriment of other market participants," says the FSA, adding that this could undermine market confidence.

When the LSE raised concerns with the firm, it promised to improve controls but actually took steps to avoid scrutiny, changing its DMA provider.

Swift Trade - which was dissolved in late 2010 with its assets transferred to BRMS Holdings - recently settled with Canadian and US regulators.

However, it had challenged the FSA decision, taking its case to the Upper Tribunal, arguing that its trading was not market abuse because its orders were not in shares but in derivatives and that it was not responsible for what traders in its network did.

With the appeal now rejected, Tracey McDermott, director, enforcement and financial crime, FSA, says: "This was a particularly cynical case where a business model was based on market abuse. The approach taken by Swift Trade was novel and complex, designed to allow them to benefit at the expense of other market users, and to make detection more difficult."