Although I'm a little fish in a very large pond, I am on a crusade to rid the market of these improprieties, and expose as much as I am capable of. As such, here is a concise description of problems that currently exist on the NYSE (all relating to Specialist activity), which prompted me to write to the SEC, NASD, and NYSE market surveillance division. Of course, I received boilerplate letters/emails back from the latter 2, and never heard from the SEC. Feel free to use any of this information in future articles, to depict how the "little guy" is getting hurt from these corrupt practices. By the way, I am a profitable scalp trader; however, I feel that my profits are being limited by the abuses below: Since I began my full-time job of Day Trading a year ago, I have learned an awful lot about how the market works, and unfortunately, have learned how corrupt the marketplace really is. I worked for Reuters for 13 years in IT management (the majority of which was spent developing institutional and retail foreign exchange-based trading systems), and thought I knew everything about the marketplace, until I actually started trading for a living. I trade exclusively NYSE-listed issues that have low liquidity (average of about 100K - 200K shares per day). My chief 3 complaints with NYSE, are as follows: 1) Specialists "pennying" front-running activity seems to be on the rise, since market liquidity has dried up of late. Although NYSE Open Book quotes are on a 10-second delay, market orders that are "front-run" by Specialists (by a penny), rarely, if ever, appear as entered orders on the NYSE Open Book. This results in Specialists "jumping in front" when it is advantageous for them, and diminishes the usefulness of the supply/demand information provided in the Open Book, and provides the Specialist with a tremendous advantage. This activity is running rampant these days - the invent of decimalization has been a real boon for the Specialist; not the trader. The so-called "price improvement" that NYSE allows for, provides for penny improvements for those who are already willing to pay the "market" price for a stock, and causes "price disimprovement" for those that are posting limit orders, and are jumped in front of. This clearly disrupts the laws of supply and demand in the marketplace, and diminishes the usefulness of placing limit orders. This results in diminished confidence in the marketplace by those placing limit orders, which will inevitably result in fewer limit order being placed. This will ultimately (and has already) diminished the liquidity in the marketplace. 2) Orders that get routed to 3rd party markets or ECN's and that are at the top of the book, for a NYSE-listed stock, invariably get passed up on execution, when a NYSE-based order can be executed at the same price. The Specialist invariably gives precedence to NYSE orders at the SAME price (which are either shares of the stock in HIS portfolio OR are customer NYSE market orders), even if these 3rd party orders are at the top of the book. This poor inter-market coordination (governed by the truly archaic ITS system) is within legal boundaries, but creates 3 inherent problems: a) Poor execution for these types of 3rd party market top-of- book orders, which diminishes the fairness of the marketplace. There truly isn't one market for these stocks, but many, as a result, which creates inefficiencies, and leads to advantages for Specialists; b) Creates a logjam for limit orders, that are stuck behind these types of orders. As a result, I will be less likely to place a limit order behind one of these 3rd party market orders, if they are at the top of the book. This results in the altering of the supply/demand and liquidity for this stock. Limit orders are the backbone of what creates a market for a given issue, and tampering with this activity, is a true violation of what the marketplace is all about; c) Although it cannot be proven, the Specialist can place a trade at the top of the books for one of these ECN's, and basically render all limit orders behind it, useless, by continuously making fills at that price. The Specialist, by rules of the ITS market, can give precedence to orders on the NYSE (his/her own or customer-based) at that price, and effectively ignore any of these ECN orders (by rule, he/she does not have to fill "across" these markets). What winds up happening, is that regardless of whether the Specialist has created this top-of-book ECN trade or not, this archaic ITS system effects the laws of supply and demand, which is not a good thing for the fairness of the marketplace, and certainly helps diminish public confidence in the marketplace. 3) Although it is very hard to prove, there are some Specialists that create bogus orders at times (on the NYSE Open Book), that are placed on the book, which help manipulate the marketplace in their favor. There is no question that this activity occurs, and the legality of it is certainly questionable. Unfortunately, this is very hard to prove. I have written to the NYSE and the NASD to complain about these activities (with concrete Time and Sales examples), for what it's worth. Additionally, I am scouring the Internet in an attempt to see what legislation is in the pipeline to correct these problems, and to find out if there is more that I can do to help expose it. The average John Q. Public person has no idea that these activities are occurring - it is traders, like ourselves, who are intimate with these unethical activities. Furthermore, these improprieties are readily more apparent to the trader in stocks that have thin liquidity. In high liquidity stocks, it is very hard to recognize these activities, since the market moves so quickly with these issues. In thin liquidity stocks, every move can be watched and tracked, and it is that much more apparent. Moreover, these practices seems to be on the rise, since the market's overall liquidity has dropped dramatically over the last several months. I love trading for a living, but having to deal with these severe imperfections in the NYSE, is an impediment I shouldn't have to face. Specialists are in business to make money first, and to help regulate/stabilize the market second. These 2 functions are not compatible, and until they are addressed properly, this "all-boys club" will continue to undermine the spirit of the true marketplace.