October 8, 2026
On the Definition of a Swap: Same Exposure, Different Form
Event contracts have drawn attention, so have questions about how they fit in the current regulatory framework in the U.S.
An event contract asks a straightforward Yes/No question about the future and turns the answer into a price. As event contracts have drawn wider attention, so too have questions about how they fit in the current regulatory framework in the U.S.
While the questions may feel new, the principle for answering them is not.
Financial markets have long offered various vehicles to gain exposure to the same underlying market, and the form which that exposure takes determines which rules apply, who regulates the transaction, and what protections come attached to it. That principle holds whether the market is dealing with an emerging product category or one of the world’s oldest commodities.
Gold provides a useful example because exposure to it can take several forms.
An investor can buy the physical metal outright as bars, coins, or a warehouse receipt. That purchase is subject to its own dealer diligence and AML/KYC requirements and is typically settled bilaterally or through established bullion market infrastructure.
The same investor could instead buy a gold futures contract: a standardized, exchange-listed product built around a defined "good delivery" specification, regulated by the CFTC, and settled via a derivatives clearing organization (“DCO”). Or they could buy shares in a gold ETF: a registered security regulated by the SEC, traded on an exchange, and cleared like any other equity.
These products represent similar economic exposure to the same underlying - gold - but they're distinct instruments that coexist under different regulatory regimes. Physical gold sales fall under a patchwork of federal and state authority depending on what kind of transaction is taking place. Gold futures fall within the CFTC's jurisdiction; gold ETFs, as securities, fall within the SEC's. Each is governed according to the legal and regulatory constructs that define what the product actually is, not what people feel it should be.
That distinction between economic exposure and legal form carries directly into event contracts. Under the Commodity Exchange Act, the definition of a swap includes contracts in which payment depends on the occurrence or nonoccurrence of an event associated with a potential financial, economic or commercial consequence. Event contracts structured this way are swaps, regulated by the CFTC.
Event contracts can also be structured as options that are securities regulated by the SEC. As with gold, the economic exposure to the underlying can be similar even when the tradeable products are in strictly different categories. This extends to contracts where an event such as sports is the underlying.
In either form, swap or security, event contracts traded on a CFTC-regulated or SEC-regulated exchange are subject to a set of market oversight requirements and protections that are effective and efficient each within their respective domains.
Every swap contract listed by a Designated Contract Market (DCM) must first be evaluated for susceptibility to manipulation, with that analysis submitted to the CFTC as part of the DCM's self-certification process. Once trading begins, exchanges that offer 24/7 trading conduct surveillance at both the contract and participant level continuously: overnight, on weekends, and through holidays.
A Derivatives Clearing Organization (DCO) has a related but distinct job: making sure the money behind every position is funded and segregated. A common approach for event contracts is full collateralization, meaning a position can't be opened unless it's funded up front, ensuring settlement when the event resolves and removing counter party risk.
The classification framework for event contracts may continue to evolve, the same way market forms and products related to gold have evolved for 5,000 years. Products that fall under, and meet, the strict requirements of a strong regulatory regime present the market with utility, choice, and certainty. Participants can choose products that most closely align with their preferences.
- Tom Chippas and Matt Trudeau, Co-Founders, Rothera