France's market regulator sought Wednesday heavy fines against a US trading firm and the Paris stock exchange operator in its first case against the controversial practice of high frequency trading.

Financial Markets Authority (AMF) investigators asked the regulator's sanctions commission to levy at least 5 million euros ($5.5 million) in fines against Virtu Financial, a specialist in electronic trading, for manipulating 27 shares listed on the Paris CAC 40 index between July 21 and September 2, 2009.

The AMF is also seeking 4 million euros from Paris exchange operator Euronext for failing in its obligations to other investors by not remaining neutral and giving Virtu a commercial advantage.

High frequency trading is the use of powerful supercomputers and complex mathematical algorithms to take advantage of minute price differentials in markets by rapidly placing thousands of trades faster than competitors.

According to information presented at the hearing Virtu placed on one day 500,000 orders in shares of French electricity company EDF for less than 3 percent of the total amount of EDF shares traded that day.

As a point of comparison, the second-largest trader that day made less than a tenth the number of trades for a volume four times larger.

"Virtu literally flooded" the market with "what some don't hesitate to call phantom liquidity" in order to "skew investors perceptions" said AMF official Audrey Micouleau.

She called the case "unrivalled" but this is the same time that British trader Navinder Singh Sarao, 36, is accused by US authorities of having begun "spoofing" futures contracts.

He has been accused of placing orders for futures contracts -- agreements to buy or sell a specific product or financial instrument in the future -- before cancelling them abruptly.

The goal was for the orders to "spoof" other traders and move market prices, which could then be exploited by simultaneously executing other, real trades using automated trading software.

US officials allege Sarao trades contributed to the May 2010 "Flash Crash," when US stocks plunged 600 points in five minutes.

Euronext was reproached for relaxing its rule concerning the ratio of orders placed to transactions completed.

Above a certain threshold the stock exchange operator usually applies fines against traders, but by giving Virtu an exemption had failed in its obligation to remain "neutral and impartial", said AFM official Christophe Soulard.

Euronext replied it had also exempted four other groups from the threshold as part of a temporary experiment conducted when the sector was rapidly changing and there was no regulation.

High frequency trading is controversial in part as that it benefits large traders who can afford the huge investment into equipment to the detriment of small investors.