Are stock exchanges offering fair play?

A small order I placed in an ETF on the London Stock Exchange today showed that even for small orders the markets offer an uneven playing field for the unwary. The second my order had been entered there appeared an offer that was just placed 1 pence inside my limit order. Given that the spread in this 'liquid' ETF was a quite wide 1 per cent between bid and offer there was obviously room for the 'market maker' to offer an improved price compared to my order. While the behaviour of the dealer can certainly no be called front running it still leaves the question why he has not put the better price on the system in the first place. Having my order behind his offered price gives him the opportunity to cover any sale made at his new price by 'lifting' my offer. Given the proliferation of competing dealing platforms also makes it difficult - if not impossible - for the retail investor to be sure that no transaction takes place at the limit price (or above it) which should have included the limit order.
(08/02/2011)