November 29, 2011
Traders displaying liquidity are providing a valuable service to the market, insofar as they narrow the bid/ask spread and create a transparent market environment. In return, we expect that as part of this transparent market, the best bid/offer will receive priority treatment.
Allowing insiders to jump in front of displayed liquidity wrongly affords them all the benefits of being a liquidity provider, while simultaneously avoiding the attendant risks.
The ultimate result is easy to predict: less liquid markets and widening spreads.