# What Is the "Misappropriation Theory" and How Does It Apply to Block Trades? ▴ Question

**Published:** 2025-08-12
**Categories:** Question

---

![A sleek, angled object, featuring a dark blue sphere, cream disc, and multi-part base, embodies a Principal's operational framework. This represents an institutional-grade RFQ protocol for digital asset derivatives, facilitating high-fidelity execution and price discovery within market microstructure, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-rfq-for-institutional-digital-asset-derivatives-execution.jpg)

![Abstract mechanical system with central disc and interlocking beams. This visualizes the Crypto Derivatives OS facilitating High-Fidelity Execution of Multi-Leg Spread Bitcoin Options via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-microstructure-for-high-fidelity-block-trades.jpg)

## Concept

![A precision-engineered blue mechanism, symbolizing a high-fidelity execution engine, emerges from a rounded, light-colored liquidity pool component, encased within a sleek teal institutional-grade shell. This represents a Principal's operational framework for digital asset derivatives, demonstrating algorithmic trading logic and smart order routing for block trades via RFQ protocols, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-crypto-derivatives-os-core-algorithmic-execution-engine.jpg)

## The Information Boundary and Its Breach

At the heart of institutional market operations lies a fundamental principle ▴ the controlled and ethical handling of proprietary information. The [Misappropriation Theory](https://prime.greeks.live/area/misappropriation-theory/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) of insider trading serves as a critical legal framework that governs the sanctity of this information. This doctrine extends the prohibition against insider trading beyond traditional corporate insiders, such as officers and directors, to any person who receives [confidential information](https://prime.greeks.live/question/in-what-ways-does-a-hybrid-rfp-rfq-process-better-protect-an-issuers-intellectual-property-and-confidential-information/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and then uses it to trade securities.

The core of the theory is the deception of the source of the information. It posits that an individual commits fraud by converting confidential information, entrusted to them for a specific purpose, into a tool for personal financial gain, thereby breaching a duty of trust and confidence owed to that source.

The theory’s application is broad, covering a vast ecosystem of market participants who are not employees of the company whose securities are being traded. This includes lawyers, accountants, consultants, and even family members who are given access to [material non-public information](https://prime.greeks.live/area/material-non-public-information/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (MNPI) with an expectation of confidentiality. The act of using this privileged information for trading constitutes a form of embezzlement; it is the theft of valuable data that belongs to another party. This legal perspective is vital for maintaining the structural integrity of the markets, ensuring that the playing field is not unfairly tilted in favor of those with privileged access.

> The Misappropriation Theory establishes that a person commits securities fraud by using confidential information for trading, in breach of a duty owed to the source of that information.

![Metallic platter signifies core market infrastructure. A precise blue instrument, representing RFQ protocol for institutional digital asset derivatives, targets a green block, signifying a large block trade](https://options.greeks.live/wp-content/uploads/2025/07/precision-institutional-digital-asset-derivatives-rfq-protocol-execution-engine-market-microstructure-optimization-for-alpha-generation.jpg)

## A Necessary Expansion of Fiduciary Duty

The Misappropriation Theory evolved to address a significant gap left by the “classical” theory of [insider trading](https://prime.greeks.live/area/insider-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The classical theory is confined to corporate insiders who owe a direct [fiduciary duty](https://prime.greeks.live/area/fiduciary-duty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to their company’s shareholders. Under this older framework, an outsider who obtained MNPI and traded on it might not be liable because they had no formal relationship with the shareholders of the company being traded. The Supreme Court’s decision in _U.S. v.

O’Hagan_ was a landmark event that solidified the Misappropriation Theory as a central pillar of securities regulation. In that case, an attorney for a law firm representing a company in a tender offer used that information to trade in the target company’s stock. He owed no duty to the target company’s shareholders, but he did owe a duty of confidentiality to his law firm and its client. His trading was a breach of that duty, a misappropriation of information that was not his to use for personal profit.

This expansion is a logical and necessary component of a modern financial system. Information regarding a significant corporate event, such as a merger, acquisition, or a large [block trade](https://prime.greeks.live/question/can-pre-trade-analytics-reliably-predict-the-market-impact-of-a-large-block-trade-in-otc-markets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), is a valuable asset. The Misappropriation Theory protects the property rights to this information.

It ensures that individuals who are temporarily entrusted with such knowledge, becoming “temporary insiders,” are held to the same standard of confidentiality as permanent corporate officers. This creates a more robust and equitable market structure where confidence in the fairness of price discovery is preserved.

![Visualizes the core mechanism of an institutional-grade RFQ protocol engine, highlighting its market microstructure precision. Metallic components suggest high-fidelity execution for digital asset derivatives, enabling private quotation and block trade processing](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-core-1.jpg)

![Interconnected modular components with luminous teal-blue channels converge diagonally, symbolizing advanced RFQ protocols for institutional digital asset derivatives. This depicts high-fidelity execution, price discovery, and aggregated liquidity across complex market microstructure, emphasizing atomic settlement, capital efficiency, and a robust Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-microstructure-protocols.jpg)

## Strategy

![Engineered components in beige, blue, and metallic tones form a complex, layered structure. This embodies the intricate market microstructure of institutional digital asset derivatives, illustrating a sophisticated RFQ protocol framework for optimizing price discovery, high-fidelity execution, and managing counterparty risk within multi-leg spreads on a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-stack-optimization.jpg)

## Block Trades as a Nexus of Information Risk

[Block trades](https://prime.greeks.live/area/block-trades/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), which are large, privately negotiated transactions of securities, represent a concentrated point of information risk and are therefore a primary area of focus for the application of the Misappropriation Theory. The very nature of a block trade requires that information about the impending transaction be shared with a select group of parties, including the institutional seller, the broker-dealer facilitating the trade (the “block house”), and potentially a limited number of institutional buyers. This information ▴ specifically, the knowledge that a large volume of a security is about to be sold ▴ is highly material and non-public. Its premature disclosure can have a significant impact on the security’s market price.

A strategic challenge for financial institutions handling these trades is managing the flow of this MNPI. The institution has a clear duty of trust and confidence to the client initiating the block trade. The client expects the institution to execute the trade discreetly to minimize market impact and achieve the best possible price. If the institution were to leak information about the upcoming block trade to other clients, such as hedge funds, allowing them to preemptively short the stock, this would constitute a breach of that duty.

This act of tipping is a classic example of misappropriation. The institution is deceiving the source of the information (the client) and using that information for its own benefit or the benefit of other clients, often to curry favor or generate additional trading commissions.

> Knowledge of an impending block trade is potent, material non-public information, and its misuse is a direct violation of the duty owed to the information’s source.

![A precision-engineered metallic component with a central circular mechanism, secured by fasteners, embodies a Prime RFQ engine. It drives institutional liquidity and high-fidelity execution for digital asset derivatives, facilitating atomic settlement of block trades and private quotation within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-platform-rfq-engine-for-high-fidelity-execution-and-atomic-settlement-of-block-trades.jpg)

## The Anatomy of a Block Trade Misappropriation Violation

For regulatory bodies like the Department of Justice (DOJ) and the [Securities and Exchange Commission](https://prime.greeks.live/area/securities-and-exchange-commission/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (SEC) to successfully apply the Misappropriation Theory to a block trade scenario, they must prove a clear sequence of events. The core components of a violation are well-defined and provide a roadmap for understanding the strategic risks involved.

- **A Duty of Trust and Confidence.** This is the foundational element. A financial institution, by agreeing to handle a client’s block trade, implicitly and often explicitly (through confidentiality agreements or NDAs) establishes a duty to protect the information related to that trade. This duty is owed directly to the client who is the source of the MNPI.

- **Material, [Non-Public Information](https://prime.greeks.live/question/what-constitutes-a-materially-non-compliant-bid-in-a-public-rfp/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).** The information about the block trade must be material, meaning a reasonable investor would consider it important in making an investment decision. It must also be non-public. Information about a large, market-moving trade that has not yet been executed or announced clearly meets this standard.

- **A Breach of Duty.** The breach occurs when the institution, or an employee of the institution, discloses this MNPI to a third party without the client’s consent. This is the act of “tipping.” The tippee, the one who receives the information, is then able to trade on it, often at the expense of the client and the broader market.

- **Personal Benefit.** The government often needs to demonstrate that the tipper received a personal benefit for sharing the information. This benefit does not have to be a direct cash payment. It can be reputational, such as enhancing a relationship with a valuable client, or it can be a reciprocal arrangement. Recent court decisions have interpreted “personal benefit” broadly, making it easier for prosecutors to meet this standard.

The table below illustrates the clear distinction between the classical and misappropriation theories, highlighting why the latter is the primary tool for policing [block trading](https://prime.greeks.live/question/what-does-the-query-google-block-breaker-have-to-do-with-block-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

| Attribute | Classical Theory | Misappropriation Theory |
| --- | --- | --- |

![Precision metallic pointers converge on a central blue mechanism. This symbolizes Market Microstructure of Institutional Grade Digital Asset Derivatives, depicting High-Fidelity Execution and Price Discovery via RFQ protocols, ensuring Capital Efficiency and Atomic Settlement for Multi-Leg Spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-for-precision-execution.jpg)

![A sleek, illuminated control knob emerges from a robust, metallic base, representing a Prime RFQ interface for institutional digital asset derivatives. Its glowing bands signify real-time analytics and high-fidelity execution of RFQ protocols, enabling optimal price discovery and capital efficiency in dark pools for block trades](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-system-for-optimal-execution.jpg)

## Execution

![A beige spool feeds dark, reflective material into an advanced processing unit, illuminated by a vibrant blue light. This depicts high-fidelity execution of institutional digital asset derivatives through a Prime RFQ, enabling precise price discovery for aggregated RFQ inquiries within complex market microstructure, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-prime-os-3.jpg)

## Constructing Information Barriers

The execution of a compliant block trading operation hinges on the establishment and enforcement of robust information control systems, commonly known as “[Chinese Walls](https://prime.greeks.live/area/chinese-walls/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” These are internal policies and procedures designed to prevent the flow of MNPI from the private side of a firm (like the investment banking or block trading desk) to the public side (such as the sales and trading desks that interact with a wider range of clients). The objective is to create a systemic barrier that ensures information about a pending block trade is contained within the small group of individuals who have a legitimate need to know.

Effective [information barriers](https://prime.greeks.live/area/information-barriers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) are not merely a matter of policy; they require technological enforcement and constant surveillance. This includes:

- **Restricted Lists** ▴ As soon as a firm is brought over the wall on a potential block trade, the security in question is placed on a restricted list. This automatically flags or blocks any trading in that security by employees outside the deal team.

- **Access Controls** ▴ Digital and physical access to information about the trade is strictly controlled. Data is stored on secure servers with access logs, and conversations are confined to designated communication channels that can be monitored by compliance.

- **Training and Certification** ▴ All employees, particularly those on or near trading desks, must undergo regular training on the handling of MNPI and the specifics of the Misappropriation Theory. They must understand that the duty of confidentiality is absolute.

The integrity of these barriers is paramount. A single leak can lead to significant legal and reputational damage. Therefore, the execution of these controls must be flawless and auditable.

![A spherical, eye-like structure, an Institutional Prime RFQ, projects a sharp, focused beam. This visualizes high-fidelity execution via RFQ protocols for digital asset derivatives, enabling block trades and multi-leg spreads with capital efficiency and best execution across market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-prime-os-rfq-protocol-digital-asset-derivatives-block-trade-execution.jpg)

## Surveillance and the Detection of Anomalous Trading

Beyond preventing leaks, financial institutions have an obligation to actively monitor for potential misuse of information. Sophisticated surveillance systems are a critical component of a firm’s defense against misappropriation claims. These systems analyze trading data in real-time to detect patterns that may indicate that a leak has occurred and is being exploited.

> Effective compliance is an active system of surveillance and control, not a passive policy document.

The table below outlines key red flags that a surveillance system would be programmed to identify in the context of a block trade.

| Surveillance Red Flag | Description | Potential Implication |
| --- | --- | --- |

When a red flag is triggered, a compliance investigation is initiated. This involves a detailed review of all trading activity, communication logs, and employee attestations. The goal is to determine whether a breach of duty occurred and to take immediate corrective action, which may include reporting the activity to regulators. This proactive surveillance is a critical element in demonstrating to the SEC and DOJ that a firm takes its obligations seriously and has robust systems in place to prevent and detect the misappropriation of confidential information.

![A sleek, multi-component system, predominantly dark blue, features a cylindrical sensor with a central lens. This precision-engineered module embodies an intelligence layer for real-time market microstructure observation, facilitating high-fidelity execution via RFQ protocol](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-protocol-intelligence-layer-for-digital-asset-derivatives-microstructure.jpg)

## References

- O’Hagan, 521 U.S. 642 (1997).

- Gubler, Zachary J. “A Unified Theory of Insider Trading Law.” Stanford Law Review, vol. 64, no. 6, 2012, pp. 1347-1406.

- Langevoort, Donald C. “Insider Trading ▴ Regulation, Enforcement, and Prevention.” Clark Boardman Callaghan, 2021.

- Bainbridge, Stephen M. “Insider Trading Law and Policy.” Foundation Press, 2014.

- Chiarella v. United States, 445 U.S. 222 (1980).

- Securities and Exchange Commission. “Rule 10b5-1 ▴ Trading ‘on the Basis of’ Material Nonpublic Information in Insider Trading Cases.” 17 C.F.R. § 240.10b5-1.

- Coffee, John C. Jr. “Getting Away with Insider Trading? The Misappropriation Theory After O’Hagan.” The Business Lawyer, vol. 53, no. 1, 1997, pp. 1-45.

- Ayres, Ian, and Stephen Choi. “Internalizing Outsider Trading.” Michigan Law Review, vol. 101, no. 2, 2002, pp. 313-409.

![Intersecting digital architecture with glowing conduits symbolizes Principal's operational framework. An RFQ engine ensures high-fidelity execution of Institutional Digital Asset Derivatives, facilitating block trades, multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/principal-digital-asset-derivatives-rfq-engine-high-fidelity-execution.jpg)

## Reflection

![A sophisticated digital asset derivatives trading mechanism features a central processing hub with luminous blue accents, symbolizing an intelligence layer driving high fidelity execution. Transparent circular elements represent dynamic liquidity pools and a complex volatility surface, revealing market microstructure and atomic settlement via an advanced RFQ protocol](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-framework-optimizing-market-microstructure-price-discovery-intelligence-layer.jpg)

## Information Integrity as a System Asset

Understanding the Misappropriation Theory is an exercise in appreciating the architecture of market fairness. The legal doctrine is not an abstract constraint; it is a protocol designed to protect the integrity of information, which is the most valuable asset in the financial system. For any institution operating within this system, compliance is not a department, but a design principle. It must be woven into the fabric of every transaction, every communication, and every strategic decision.

The application of this theory to block trades reveals the immense pressure placed on the points of informational convergence within a firm. It forces a critical evaluation of internal systems. Are the walls between departments truly impermeable? Is surveillance technology calibrated to detect not just obvious breaches, but the subtle patterns of sophisticated misconduct?

The answers to these questions define an institution’s operational resilience and its commitment to the principles that underpin market confidence. The framework of the law provides the blueprint, but the strength of the final structure depends entirely on the quality of its execution.

![A sharp, teal blade precisely dissects a cylindrical conduit. This visualizes surgical high-fidelity execution of block trades for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-precision-execution-microstructure.jpg)

## Glossary

<a href="https://prime.greeks.live/question/in-what-ways-does-a-hybrid-rfp-rfq-process-better-protect-an-issuers-intellectual-property-and-confidential-information/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Institutional-grade infrastructure supports a translucent circular interface, displaying real-time market microstructure for digital asset derivatives price discovery. Geometric forms symbolize precise RFQ protocol execution, enabling high-fidelity multi-leg spread trading, optimizing capital efficiency and mitigating systemic risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-request-for-quote-protocol-high-fidelity-execution-market-microstructure-intelligence-layer.jpg)

## Confidential Information

A hybrid RFP/RFQ process protects IP by architecting a phased disclosure system that vets capabilities before requesting sensitive solutions. </a><a href="https://prime.greeks.live/area/misappropriation-theory/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A translucent digital asset derivative, like a multi-leg spread, precisely penetrates a bisected institutional trading platform. This reveals intricate market microstructure, symbolizing high-fidelity execution and aggregated liquidity, crucial for optimal RFQ price discovery within a Principal's Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-execution-platform-microstructure.jpg)

## Misappropriation Theory

Meaning ▴ Misappropriation Theory defines a form of insider trading where an individual illicitly uses confidential information for securities trading, breaching a fiduciary or similar duty owed to the source of that information. </a><a href="https://prime.greeks.live/area/material-non-public-information/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Interlocking transparent and opaque components on a dark base embody a Crypto Derivatives OS facilitating institutional RFQ protocols. This visual metaphor highlights atomic settlement, capital efficiency, and high-fidelity execution within a prime brokerage ecosystem, optimizing market microstructure for block trade liquidity](https://options.greeks.live/wp-content/uploads/2025/07/modular-framework-for-crypto-derivatives-os-rfq-protocol-aggregation.jpg)

## Material Non-Public Information

Meaning ▴ Material Non-Public Information refers to data that is not broadly disseminated and, if publicly known, would predictably influence the market price of a security or derivative instrument. </a><a href="https://prime.greeks.live/area/insider-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A symmetrical, high-tech digital infrastructure depicts an institutional-grade RFQ execution hub. Luminous conduits represent aggregated liquidity for digital asset derivatives, enabling high-fidelity execution and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-system.jpg)

## Insider Trading

Meaning ▴ Insider trading defines the illicit practice of leveraging material, non-public information to execute securities or digital asset transactions for personal or institutional financial gain. </a><a href="https://prime.greeks.live/area/fiduciary-duty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, bimodal digital asset derivatives execution interface, partially open, revealing a dark, secure internal structure. This symbolizes high-fidelity execution and strategic price discovery via institutional RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocols-price-discovery.jpg)

## Fiduciary Duty

Meaning ▴ Fiduciary duty constitutes a legal and ethical obligation requiring one party, the fiduciary, to act solely in the best interests of another party, the beneficiary. </a><a href="https://prime.greeks.live/question/can-pre-trade-analytics-reliably-predict-the-market-impact-of-a-large-block-trade-in-otc-markets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated system's core component, representing an Execution Management System, drives a precise, luminous RFQ protocol beam. This beam navigates between balanced spheres symbolizing counterparties and intricate market microstructure, facilitating institutional digital asset derivatives trading, optimizing price discovery, and ensuring high-fidelity execution within a prime brokerage framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-10.jpg)

## Block Trade

Pre-trade analytics offer a probabilistic forecast, not a guarantee, for OTC block trade impact, whose reliability hinges on data quality and model sophistication. </a><a href="https://prime.greeks.live/area/block-trades/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision digital token, subtly green with a '0' marker, meticulously engages a sleek, white institutional-grade platform. This symbolizes secure RFQ protocol initiation for high-fidelity execution of complex multi-leg spread strategies, optimizing portfolio margin and capital efficiency within a Principal's Crypto Derivatives OS](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-platform-secure-rfq-protocol-initiation-for-optimal-block-trade-execution.jpg)

## Block Trades

Meaning ▴ Block Trades denote transactions of significant volume, typically negotiated bilaterally between institutional participants, executed off-exchange to minimize market disruption and information leakage. </a><a href="https://prime.greeks.live/area/securities-and-exchange-commission/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic disc, reminiscent of a sophisticated market interface, features two precise pointers radiating from a glowing central hub. This visualizes RFQ protocols driving price discovery within institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-price-discovery.jpg)

## Securities and Exchange Commission

Meaning ▴ The Securities and Exchange Commission, or SEC, operates as a federal agency tasked with protecting investors, maintaining fair and orderly markets, and facilitating capital formation within the United States. </a><a href="https://prime.greeks.live/question/what-constitutes-a-materially-non-compliant-bid-in-a-public-rfp/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, pointed object, merging light and dark modular components, embodies advanced market microstructure for digital asset derivatives. Its precise form represents high-fidelity execution, price discovery via RFQ protocols, emphasizing capital efficiency, institutional grade alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-rfq-execution-system-microstructure.jpg)

## Non-Public Information

A materially non-compliant bid is one that deviates from an RFP's essential terms, compromising the fairness of the procurement process. </a><a href="https://prime.greeks.live/question/what-does-the-query-google-block-breaker-have-to-do-with-block-trading/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A polished sphere with metallic rings on a reflective dark surface embodies a complex Digital Asset Derivative or Multi-Leg Spread. Layered dark discs behind signify underlying Volatility Surface data and Dark Pool liquidity, representing High-Fidelity Execution and Portfolio Margin capabilities within an Institutional Grade Prime Brokerage framework](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-block-trade-liquidity-execution-microstructure-analytics.jpg)

## Block Trading

The query connects a game's mechanics to block trading as a systemic metaphor for managing execution risk in fragmented liquidity. </a><a href="https://prime.greeks.live/area/chinese-walls/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central Principal OS hub with four radiating pathways illustrates high-fidelity execution across diverse institutional digital asset derivatives liquidity pools. Glowing lines signify low latency RFQ protocol routing for optimal price discovery, navigating market microstructure for multi-leg spread strategies](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-intelligence.jpg)

## Chinese Walls

Meaning ▴ Chinese Walls refer to internal information barriers established within a financial institution to prevent the flow of material non-public information between departments or individuals whose interests may conflict. </a><a href="https://prime.greeks.live/area/information-barriers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A glowing central ring, representing RFQ protocol for private quotation and aggregated inquiry, is integrated into a spherical execution engine. This system, embedded within a textured Prime RFQ conduit, signifies a secure data pipeline for institutional digital asset derivatives block trades, leveraging market microstructure for high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-system-for-institutional-high-fidelity-execution.jpg)

## Information Barriers

Meaning ▴ Information Barriers define a control mechanism engineered to prevent the unauthorized or inappropriate flow of sensitive data between distinct operational units or individuals within an institutional framework. </a>

**Tags:** [U.S. V. O'Hagan](https://options.greeks.live/area/u-s-v-ohagan/), [Classical Theory](https://options.greeks.live/area/classical-theory/), [Insider Trading](https://options.greeks.live/area/insider-trading/), [Misappropriation Theory](https://options.greeks.live/area/misappropriation-theory/), [SEC Rule 10b-5](https://options.greeks.live/area/sec-rule-10b-5/), [Information Barriers](https://options.greeks.live/area/information-barriers/)	

## Discover More

- 
### [How Does Payment for Order Flow Complicate Best Execution Proof?](https://options.greeks.live/question/how-does-payment-for-order-flow-complicate-best-execution-proof/)
![A circular mechanism with a glowing conduit and intricate internal components represents a Prime RFQ for institutional digital asset derivatives. This system facilitates high-fidelity execution via RFQ protocols, enabling price discovery and algorithmic trading within market microstructure, optimizing capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-protocol-core.jpg)

PFOF complicates best execution proof by introducing a direct conflict of interest, requiring brokers to prove client outcomes were prioritized.

- 
### [What Are the Specific Penalties for Block Trade Information Security Breaches?](https://options.greeks.live/question/what-are-the-specific-penalties-for-block-trade-information-security-breaches/)
![A polished blue sphere representing a digital asset derivative rests on a metallic ring, symbolizing market microstructure and RFQ protocols, supported by a foundational beige sphere, an institutional liquidity pool. A smaller blue sphere floats above, denoting atomic settlement or a private quotation within a Principal's Prime RFQ for high-fidelity execution.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-and-rfq-protocols.jpg)

Penalties for block trade information breaches include substantial regulatory fines, disgorgement of illicit profits, imprisonment, and severe reputational damage.

- 
### [How Do Regulators Assess Whether an Investment Adviser Has Met Its Fiduciary Obligation for Best Execution?](https://options.greeks.live/question/how-do-regulators-assess-whether-an-investment-adviser-has-met-its-fiduciary-obligation-for-best-execution/)
![An institutional-grade platform's RFQ protocol interface, with a price discovery engine and precision guides, enables high-fidelity execution for digital asset derivatives. Integrated controls optimize market microstructure and liquidity aggregation within a Principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/proprietary-institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-execution-and-granular-market-microstructure-analysis-for-prime-os.jpg)

Regulators assess best execution by auditing an adviser's documented, systematic process for maximizing client value across all transaction phases.

- 
### [What Are the Primary Regulatory Concerns Surrounding Binary Options Trading for Fiduciaries?](https://options.greeks.live/question/what-are-the-primary-regulatory-concerns-surrounding-binary-options-trading-for-fiduciaries/)
![A futuristic, intricate central mechanism with luminous blue accents represents a Prime RFQ for Digital Asset Derivatives Price Discovery. Four sleek, curved panels extending outwards signify diverse Liquidity Pools and RFQ channels for Block Trade High-Fidelity Execution, minimizing Slippage and Latency in Market Microstructure operations.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-2.jpg)

A fiduciary's primary concern with binary options is their fundamental conflict with the duties of loyalty and care due to their structure.

- 
### [What Are the Regulatory Implications of Information Leakage on Corporate Bond Platforms?](https://options.greeks.live/question/what-are-the-regulatory-implications-of-information-leakage-on-corporate-bond-platforms/)
![Abstract geometric forms, symbolizing bilateral quotation and multi-leg spread components, precisely interact with robust institutional-grade infrastructure. This represents a Crypto Derivatives OS facilitating high-fidelity execution via an RFQ workflow, optimizing capital efficiency and price discovery.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-infrastructure.jpg)

The regulatory implications of information leakage on bond platforms center on enforcing market integrity through stringent data governance.

- 
### [What Are the Regulatory Implications of Systemic Information Leakage in Off-Book Trading Venues?](https://options.greeks.live/question/what-are-the-regulatory-implications-of-systemic-information-leakage-in-off-book-trading-venues/)
![A focused view of a robust, beige cylindrical component with a dark blue internal aperture, symbolizing a high-fidelity execution channel. This element represents the core of an RFQ protocol system, enabling bespoke liquidity for Bitcoin Options and Ethereum Futures, minimizing slippage and information leakage.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-engine-core-precision-component.jpg)

Systemic information leakage in off-book venues triggers severe regulatory action focused on breaches of confidentiality and surveillance failures.

- 
### [How Anonymous RFQ Delivers Superior Pricing on Block Trades](https://options.greeks.live/guide/how-anonymous-rfq-delivers-superior-pricing-on-block-trades/)
![Two sleek, pointed objects intersect centrally, forming an 'X' against a dual-tone black and teal background. This embodies the high-fidelity execution of institutional digital asset derivatives via RFQ protocols, facilitating optimal price discovery and efficient cross-asset trading within a robust Prime RFQ, minimizing slippage and adverse selection.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-prime-os-microstructure.jpg)

Command superior pricing on block trades with anonymous RFQ, securing a tangible market edge through strategic execution.

- 
### [How Do Jurisdictional Differences in Block Trade Rules Affect Global Trading Strategies?](https://options.greeks.live/question/how-do-jurisdictional-differences-in-block-trade-rules-affect-global-trading-strategies/)
![A sleek, metallic instrument with a translucent, teal-banded probe, symbolizing RFQ generation and high-fidelity execution of digital asset derivatives. This represents price discovery within dark liquidity pools and atomic settlement via a Prime RFQ, optimizing capital efficiency for institutional grade trading.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-3.jpg)

Navigating global block trade rule variances is paramount for achieving superior execution and capital efficiency.

- 
### [What Regulatory Frameworks Exist to Prevent Systemic Information Leakage in Financial Markets?](https://options.greeks.live/question/what-regulatory-frameworks-exist-to-prevent-systemic-information-leakage-in-financial-markets/)
![A central teal sphere, representing the Principal's Prime RFQ, anchors radiating grey and teal blades, signifying diverse liquidity pools and high-fidelity execution paths for digital asset derivatives. Transparent overlays suggest pre-trade analytics and volatility surface dynamics. Pinned elements indicate precise RFQ protocol engagement and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-and-market-microstructure.jpg)

Regulatory frameworks establish a market-wide operating system for managing information state, ensuring symmetrical dissemination to maintain price integrity.

---

## Raw Schema Data

```json
{
    "@context": "https://schema.org",
    "@type": "BreadcrumbList",
    "itemListElement": [
        {
            "@type": "ListItem",
            "position": 1,
            "name": "Home",
            "item": "https://options.greeks.live"
        },
        {
            "@type": "ListItem",
            "position": 2,
            "name": "Question",
            "item": "https://options.greeks.live/question/"
        },
        {
            "@type": "ListItem",
            "position": 3,
            "name": "What Is the &#8220;Misappropriation Theory&#8221; and How Does It Apply to Block Trades?",
            "item": "https://options.greeks.live/question/what-is-the-misappropriation-theory-and-how-does-it-apply-to-block-trades/"
        }
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "Organization",
    "@id": "https://greeks.live/#organization",
    "name": "Greeks.Live",
    "url": "https://greeks.live/",
    "description": "Greeks.live is the definitive toolkit for the professional options trader, dedicated to empowering our users with institutional-grade data, advanced analytics, and a comprehensive suite of trading tools designed to provide a decisive edge in the market. Every article and guide published under the Greeks.live name is a product of our deep commitment to data-driven analysis and our mission to support the global trading community.",
    "email": "support@greeks.live",
    "logo": {
        "@type": "ImageObject",
        "url": "https://options.greeks.live/wp-content/uploads/2025/07/Greeks.Live-Logo-Icon.svg"
    },
    "hasPart": [
        {
            "@type": "WebSite",
            "name": "About Us",
            "url": "https://about.greeks.live"
        },
        {
            "@type": "WebSite",
            "name": "App Download Page",
            "url": "https://about.greeks.live/#/download/basic_trade"
        },
        {
            "@type": "WebSite",
            "name": "Newcomers' Guide",
            "url": "https://twisty-sign-c8b.notion.site/Guide-for-Greeks-live-X-Deribit-Newbies-5a08a3052822427d800af6eaf3704c8d"
        },
        {
            "@type": "WebSite",
            "name": "Knowledge Base",
            "url": "https://linktr.ee/greeks.live"
        },
        {
            "@type": "WebSite",
            "name": "Option Terminology",
            "url": "https://greekslive.notion.site/88dfc00e7c584d4d8969b6302a79a12f?pvs=4"
        },
        {
            "@type": "WebSite",
            "name": "Terms of Service",
            "url": "https://greeks.live/#/tos"
        },
        {
            "@type": "WebSite",
            "name": "Disclaimer",
            "url": "https://greeks.live/#/disclaimer"
        }
    ],
    "sameAs": [
        "https://x.com/greekslive",
        "https://youtube.com/@greeks_live?si=-KjT0Lkw4WUCI0tD",
        "https://t.me/greekslive_notifications",
        "https://t.me/greekslive",
        "https://pinterest.com/greekslive/"
    ],
    "makesOffer": [
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "RFQ Platform",
                "url": "https://rfq.greeks.live",
                "description": "Execute institutional-grade block trades for crypto options and futures. This platform provides deep, over-the-counter (OTC) liquidity via a professional Request for Quote system.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Lending Tools",
                "url": "https://lend.greeks.live",
                "description": "Manage crypto lending and borrowing activities to earn yield or secure loans. This suite of tools helps users analyze interest rates and manage collateralized debt positions.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Data Lab",
                "url": "https://greeks.live/#/deribit/tools/datalab/BTC",
                "description": "Analyze historical and real-time options data with advanced metrics. This tool is designed for backtesting strategies and identifying market trends through comprehensive data visualization.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Profit & Loss Analysis (PnL)",
                "url": "https://greeks.live/#/deribit/tools/pnl_analysis",
                "description": "Track and analyze the Profit and Loss (PnL) of your options portfolio. This tool provides detailed performance metrics to help traders evaluate and refine their strategies.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Position Visualization",
                "url": "https://greeks.live/#/deribit/tools/pv/BTC",
                "description": "Visualize complex options positions and their corresponding risk profiles. This tool generates payoff diagrams to help traders intuitively understand potential profit, loss, and exposure.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Options Calculator",
                "url": "https://greeks.live/#/deribit/tools/calculator",
                "description": "Calculate the theoretical price and risk parameters ('the Greeks') of crypto options. An essential tool for pricing new trades and analyzing the sensitivity of existing positions.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live Main Platform",
                "url": "https://greeks.live/",
                "description": "The central hub for the Greeks.live suite of professional cryptocurrency options and derivatives trading tools. Access analytics, manage positions, and explore the ecosystem.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Community Forum",
                "url": "https://t.greeks.live",
                "description": "Join the official Greeks.live community. Connect with other traders, share insights, and receive the latest updates directly from the team.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live for Deribit",
                "url": "http://deribit.greeks.live",
                "description": "A dedicated interface for trading on the Deribit exchange. This platform leverages Greeks.live's advanced analytics and tools specifically for users of Deribit's options and futures markets.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live for OKX",
                "url": "http://okx.greeks.live",
                "description": "A dedicated interface for trading on the OKX exchange. This platform integrates Greeks.live's powerful analytics with the OKX marketplace, focusing on its options and derivatives products.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "GLVS.AI Trading Platform",
                "url": "https://www.glvs.ai/",
                "description": "An AI-powered platform for automated crypto options trading. Leverage advanced algorithms and data-driven signals to develop and deploy sophisticated, hands-free trading strategies.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "API Testnet & Sandbox",
                "url": "https://test.greeks.live",
                "description": "A dedicated testnet environment for developers to test their API integrations and automated trading strategies. This sandbox allows for full functionality testing without risking real funds.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        }
    ],
    "subOrganization": [
        {
            "@type": "Organization",
            "name": "GreeksLive HK Co., Limited",
            "email": "support@greeks.live",
            "telephone": "+852-56418949",
            "address": {
                "@type": "PostalAddress",
                "streetAddress": "Unit 11, 27/F, K. Wah Centre, 191 Java Road",
                "addressLocality": "Hong Kong",
                "addressRegion": "North Point",
                "addressCountry": "CN",
                "postalCode": "0000"
            },
            "geo": {
                "@type": "GeoCoordinates",
                "latitude": "22.2932357",
                "longitude": "114.2022026"
            },
            "image": "https://options.greeks.live/wp-content/uploads/2025/08/Wah-Centre-Hong-Kong.jpg"
        }
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "Article",
    "mainEntityOfPage": {
        "@type": "WebPage",
        "@id": "https://options.greeks.live/question/what-is-the-misappropriation-theory-and-how-does-it-apply-to-block-trades/"
    },
    "headline": "What Is the \"Misappropriation Theory\" and How Does It Apply to Block Trades? \u25b4 Question",
    "description": "The Misappropriation Theory governs the use of confidential data, making the breach of a duty of trust to an information source a fraudulent act. \u25b4 Question",
    "url": "https://options.greeks.live/question/what-is-the-misappropriation-theory-and-how-does-it-apply-to-block-trades/",
    "datePublished": "2025-08-12T19:47:16+00:00",
    "dateModified": "2025-08-12T19:47:18+00:00",
    "articleSection": [
        "Question"
    ],
    "author": {
        "@id": "https://greeks.live/#organization"
    },
    "publisher": {
        "@id": "https://greeks.live/#organization"
    },
    "image": {
        "@type": "ImageObject",
        "url": "https://options.greeks.live/wp-content/uploads/2025/07/institutional-crypto-derivatives-os-core-algorithmic-execution-engine.jpg",
        "caption": "A sophisticated internal mechanism, featuring a helical blue algorithmic trading core, is meticulously integrated with a robust, light-toned data intelligence layer, all contained within a polished teal institutional-grade casing. This visual metaphor illustrates a Principal's operational framework for digital asset derivatives, specifically optimized for RFQ protocols and multi-leg spread execution. It underscores the precision required for high-fidelity execution, managing market microstructure dynamics, and achieving best execution through advanced smart order routing for dark pool and block trade liquidity, minimizing slippage and information leakage."
    },
    "keywords": [
        "Block Trades",
        "Chinese Walls",
        "Classical Theory",
        "Compliance Surveillance",
        "Fiduciary Duty",
        "Information Barriers",
        "Insider Trading",
        "Material Non-Public Information",
        "Misappropriation Theory",
        "SEC Rule 10b-5",
        "Securities and Exchange Commission",
        "U.S. V. O'Hagan"
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "WebSite",
    "url": "https://options.greeks.live/",
    "potentialAction": {
        "@type": "SearchAction",
        "target": "https://options.greeks.live/?s=search_term_string",
        "query-input": "required name=search_term_string"
    }
}
```


---

**Original URL:** https://options.greeks.live/question/what-is-the-misappropriation-theory-and-how-does-it-apply-to-block-trades/
