Time to Update Those NDA’s to Include Use for Futures Markets
Non-disclosure agreements have always been misnamed. They are not merely agreements not to disclose; they are instruments that allocate risk, define permissible conduct, and—critically—impose fiduciary-like constraints on the use of information that one party entrusts to another in the context of a business relationship. The “D” in NDA has historically dominated drafting and enforcement analysis. The “U”—use—has lagged. That imbalance is now untenable.
Start with the baseline. A conventional NDA defines “Confidential Information” broadly (often including business plans, product roadmaps, financials, source code, customer lists, and “all information disclosed, whether oral, written, or electronic”), imposes obligations of non-disclosure and limited use (typically “solely for the Purpose”), carves out standard exclusions (information already known, independently developed, or publicly available), and provides for term, return/destruction, and equitable remedies. Courts have long enforced these agreements under ordinary contract principles, provided they are reasonable in scope and not contrary to public policy. See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269–70 (7th Cir. 1995), (affirming injunction based on threatened misappropriation where an executive’s knowledge would inevitably inform a competitor’s strategy), and E.I. duPont de Nemours & Co. v. Christopher, 431 F.2d 1012, 1015–16 (5th Cir. 1970),
(protecting trade secrets against improper acquisition). Parallel statutory regimes—most prominently the Defend Trade Secrets Act—reinforce that misuse of confidential business information is actionable even absent literal disclosure. 18 U.S.C. § 1836(b)(1).
Well-drafted NDAs, therefore, do more than prohibit “telling.” They restrict “using.” Typical clauses limit the recipient to using the information “solely for evaluating a potential transaction” or “for performing obligations under the Agreement,” and prohibit “reverse engineering, decompiling, or creating derivative works.” In the merger, joint development, and vendor contexts, these use restrictions are the economic core of the bargain. They prevent Company B from incorporating Company A’s features into a competing product, from targeting A’s customers with A’s pricing intelligence, or from short-circuiting A’s go-to-market strategy.
Layered on top of this private law architecture is federal securities law. Rule 10b-5 makes it unlawful to trade “on the basis of” material nonpublic information in breach of a duty of trust or confidence. 17 C.F.R. § 240.10b-5. The Supreme Court has recognized that such a duty can arise from a relationship of trust or confidence—precisely the kind an NDA can establish—such that trading while in possession of MNPI constitutes deception. United States v. O’Hagan, 521 U.S. 642, 652–53 (1997), (endorsing the “misappropriation theory” where a person trades on information in breach of a duty owed to the source). The SEC has further clarified that a person trades “on the basis of” MNPI if aware of it at the time of the trade. 17 C.F.R. § 240.10b5-1(b). In practice, NDAs often function as the contractual substrate that gives rise to the fiduciary-like duty necessary to trigger insider-trading liability.
That framework presumes a familiar universe of misuse: disclosure to competitors, product copying, customer poaching, or trading in the issuer’s securities. But markets have evolved faster than our boilerplate. Enter prediction markets—regulated and unregulated venues where participants stake positions on the occurrence of future events: election outcomes, macroeconomic indicators, commodity prices, regulatory actions, even the timing or success of corporate milestones. These instruments may not be “securities” in the conventional sense, and the subject of the wager may be orthogonal to the disclosing party’s identity. Yet the informational advantage derived from confidential disclosures can be decisive.
Consider a straightforward scenario. Company B receives Company A’s confidential supply-chain data, revealing a critical dependency on a single overseas component with fragile logistics. An employee of B does not trade in A’s stock. Instead, she takes positions in a prediction market on shipping delays, energy prices, or election outcomes in the supplier’s jurisdiction—events whose probabilities are materially illuminated by A’s confidential disclosures. Company A may suffer no direct trading harm; there may be no “security” of A at issue. But the employee has plainly exploited A’s information for personal gain outside the “Purpose” contemplated by the NDA.
Does existing law reach that conduct? Sometimes. If the market instrument is a security, Rule 10b-5 may apply. If the information qualifies as a trade secret and the use is “improper,” civil remedies under the DTSA may attach. 18 U.S.C. § 1839(6)–(7). But the fit is imperfect. The theory is neither classic insider trading nor straightforward competitive misuse. It is informational arbitrage leveraging another’s confidential data in a different market. Courts assessing “use” clauses will ask what the parties agreed to, not what clever end-runs a recipient can devise.
That is the drafting gap. Most NDAs prohibit use “for any purpose other than the Purpose.” That language is broad, but it is often litigated in the shadow of competitive harm. When the harm is diffuse, indirect, or external to the parties’ commercial relationship, recipients will argue that the agreement did not clearly proscribe the conduct. Given modern pleading standards, conclusory assertions of “misuse” will not suffice; the disclosing party must tie the conduct to the contractual prohibition with specificity. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009), Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–57 (2007).
The solution is not complicated, but it requires intent. Update the use restriction to address informational exploitation in non-traditional markets. A modern NDA should make explicit that “use” includes any exploitation of Confidential Information to obtain an advantage in financial instruments, wagers, or prediction markets, whether or not such instruments are securities and whether or not the outcome relates directly to the disclosing party. It should extend to the recipient’s personnel and controlled affiliates, and it should prohibit both direct and indirect use (including use to inform models, signals, or decision rules). It should also address the increasingly common practice of feeding confidential data into analytical or AI systems whose outputs may then guide trading or wagering decisions, making clear that such ingestion constitutes “use.”
Precision matters. Courts enforce what the parties wrote. A clause that states, in substance, that the recipient shall not “use Confidential Information to inform, influence, or support any position, transaction, or wager in any market, including securities, derivatives, commodities, or prediction markets, irrespective of whether such position directly references the disclosing party,” closes the interpretive gap. Coupled with audit rights, employee certification requirements, and injunctive remedies, it becomes a practical control rather than aspirational language.
There is a secondary benefit. By expressly defining the scope of prohibited “use,” the NDA strengthens the argument that the relationship creates a duty of trust or confidence with respect to that category of conduct. In the appropriate case, that may support regulatory theories where the instrument at issue falls within the ambit of securities or commodities law, or where anti-fraud principles apply. At a minimum, it eliminates the argument that the contract is silent.
None of this is to suggest that every informational advantage is unlawful. Markets reward insight. But there is a difference between insight and misappropriation. When the advantage is purchased with another party’s confidential disclosures, outside the agreed “Purpose,” it is not merely clever—it is a breach.
The bottom line is straightforward. NDAs have always policed disclosure. They have long policed competitive use. They now need to police informational exploitation across adjacent markets. If your templates do not speak to that reality, they are already out of date. In a world where you can “bet the farm” without ever touching the issuer’s stock, the failure to update the “U” in NDA is a risk you no longer need to accept.
