The firm was ordered to pay Â£490,000 by the Financial Services Authority (FSA) after it was found to have failed to provide proper reports on an estimated two million transactions made between 2007 and 2009.
Under the FSA rules, firms are required to provide information on trades by close of business the day after a trade has been executed as part of a system set up to avoid market abuse.
An estimated 55,000 transactions were not reported while more than 1.9 million were reported but with one or more data field missing, the organisation explained.
Margaret Cole, managing director of enforcement and financial crime, said: "City Index failed to report accurately a high proportion of its transactions for almost two years. This failure is a serious breach of our rules because it can have a damaging impact on our ability to detect and investigate suspected market abuse.
"Firms and their management must ensure they submit quality transaction reporting data and we encourage all firms to review the integrity of this data on a regular basis.â
City Indexâs cooperation with the FSA meant that the penalty was reduced to Â£490,000 from Â£700,000.
By Jim Ottewill