hard · Market Microstructure

Under the standard assumption that informed traders strongly prefer immediate execution while uninformed liquidity traders are more willing to wait, which mechanism makes this argument MOST likely to be correct?

1. The dark pool's no-price-improvement-uncertainty offers a positive expected execution probability that screens uninformed traders out of the lit book, raising the informed fraction on the lit book and widening, not narrowing, its spread.
2. Because dark midpoint fills are uncertain, patient uninformed traders self-select into the dark pool, lowering the informed fraction among remaining lit-book takers and tightening the lit-book adverse-selection spread.
3. The dark pool removes price discovery entirely, so the lit market maker faces only noise traders and can quote a zero spread regardless of the informed population.
4. Anonymity in the dark pool lets informed traders hide, so they migrate there, and the lit book — now facing fewer informed traders — narrows its spread accordingly.

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