Philip McBride Johnson: If you weren't in the grain business, who cared?

For Futures' 40th anniversary, we asked Phil Johnson to give some insight to futures industry regulations and changes.

Philip McBride JohnsonEditor’s note: Philip McBride Johnson is a former chairman of the Commodity Futures Trading Commission (1981-1983) whose name is part of the 1981 Shad-Johnson Accord, which was an agreement between Johnson and then SEC Chairman John Shad over jurisdiction on stock index products. After serving in government, Johnson practiced law with Skadden-Arps, retiring in 2010. Now he spends the day enjoying the warmth of Florida and writing commentary for industry sites, including We asked him for a perspective on changing regulation over the past 40 years.  

Has it been 40 years? Had I spent it wisely, I would know. "Those were the best of times; those were the worst of times." And I enjoyed every minute. 

Once upon a time, the Commodity Futures Trading Commission (CFTC) was the new kid on the Federal block. Courts routinely misnamed it in their judicial opinions. After all, if you weren't in the grain business, who cared? Even if you were CFTC chairman (raking in $49,500 a year), the visits to the White House were few and a bit awkward. But the ambiguity of the futures markets was a positive force, with the listener lost by the second sentence. It was like explaining astrophysics to a grade school class (or Congress). 

A strange gaggle of men (women would join later) left home each day, collected their trading jackets from the exchange cloak room, and behaved like children-in-tantrum from the opening bell until the close. They were "making markets" without fully realizing it. Being perched on the trading pit's top step was like Olympic gold. 

The markets changed, of course (don't we all?). The transition from farm products to financial instruments fed the dominant evolution for a decade or so, followed by the replacement of trading floors with electronic matching systems. The markets also embraced other industries like metals and energy

Then came the first serious off-exchange instruments with the humble name of "swaps" that the CFTC tolerated (within limits) for more than a decade. When it decided to reconsider this largesse in the 1990s, Congress directed the CFTC to, well, butt out. The Dodd-Frank Act following the 2008 financial meltdown tried to re-introduce the CFTC into this field but assumed (wrongly, in my view) that swaps are "different" from futures contracts and commodity options already within the CFTC's remit and established a new, complex and wildly costly regime for swaps that should keep the agency (and clever industry lawyers looking for loopholes) busy for a generation. After all, creating jobs is the mantra of both major political parties these days. 

And then there was the gender gap. As counsel to the Chicago Board of Trade for nearly a generation, I found myself frequently at the Union League Club just down the street for meetings or social affairs. It was male-only and there was a separate "women's entrance" (regardless of pedigree or position) that seemed quaint to me. I threatened to quit the Club and eventually did. That policy has also changed. And the CBOT admitted its first female member during that period, ending the "bathroom argument" (i.e., nothing personal, madam, but we don't have ladies' rooms on the trading floor). 

Electronic markets have proven to be a mixed blessing. High-frequency trading with algorithms has created the occasional chaos, not to mention a chasm between the computerized culture and the average hedger or speculator. Facebook indiscretions pale by comparison. 

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