Philip McBride Johnson: Made CFTC master of its own domain.

Agents of Change

Originally published in the "Agents of Change" 2007 Special Issue

Philip McBride JohnsonPhilip McBride Johnson says, without a doubt, his greatest economic contribution to the history of futures was helping the Commodity Futures Trading Commission (CFTC) win exclusive jurisdiction over regulating commodities trading — in which he played the leading role in securing by drafting key jurisdictional provisions of the Commodity Futures Trading Commission Act of 1974 that made the CFTC the sole regulator of the U.S. futures industry.

“That was absolutely critical,” he says.

Johnson also played a key role in broadening the definition of commodities to include futures on financial instruments like interest rates.

Johnson, who heads the exchange-traded commodities, futures and derivative products practice group at Skadden, Arps, Slate, Meagher & Flom LLP, has devoted nearly all of his 45 years in the practice of law to the U.S. laws, regulations and agencies governing the markets in futures contracts, options, swaps and other derivative instruments.

He laid the legal foundation for the development of the first interest rate futures contract and event futures, the first cash-settled futures, the first stock index, the first central exchange for securities options and the first national self-regulatory organization for the futures brokerage community — the National Futures Association.

Until the early 1970s, all U.S. futures trading was concentrated in farm products (wheat, corn, etc.) and the U.S. Department of Agriculture (USDA) regulated those contracts. Only those farm products were regarded as "commodities" subject to USDA regulation.

By the early 1970s, exchanges were beginning what would become a torrent of new futures contracts involving assets and industries different from agriculture. The Chicago Mercantile Exchange (CME) launched futures contracts on foreign currencies, there were precious metal futures on the Commodity Exchange Inc. (Comex) and the New York Mercantile Exchange (Nymex) began its foray into the energy field with its heating oil contract. None of these exchanges were regulated by the USDA.

Industry players knew someone would step forward to regulate them. But who?

“Upon reflection, the answer was a dizzying array of possible regulators as well as the prospect that all of them might claim the right to act as regulator,” Johnson says.

For example, foreign currencies, on which the CME had begun to trade futures contracts, were of keen interest to the U.S. Treasury Department and the Federal Reserve because of their relationship to the U.S. dollar and the balance of payments; and to the Department of Commerce because currency values affect the import/export equation and to each of the 50 state banking authorities.

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