“There was understandable concern that, left to evolve on its own, the regulatory structure for these new products would create chaos: A multitude of authorities jostling with each other for supremacy, disagreeing on policies, making conflicting demands on the futures community. The futures markets could suffocate in that environment and, even if not, the costs of compliance would be astronomical,” Johnson says.
As outside counsel to the CBOT, he was directed to make every effort to assure that CFTC would be the exclusive regulator of the futures markets and that its jurisdiction covered everything that is traded for future delivery: Meaning, the definition of commodity had to be expanded from farm products to every conceivable object of futures trading.
That was a huge task, but the Yale University law graduate did just that. For exclusive jurisdiction, he provided language to congressional staff and it was adopted. However, the same provision in the House version contained a second clause preserving the jurisdiction of other federal agencies which nullified the CFTC's exclusivity.
“So in the Senate, I provided to congressional staff a short phrase to place between the two clauses: “Except as hereinabove provided,” which was adopted and enacted into law. This phrase was intended to assure that, where the CFTC had exclusive jurisdiction, it preempted other agencies. The courts later affirmed that reading,” he says.
In expanding the definition of “commodity,” he concluded that identifying specific items could generate opposition from other regulatory authorities. For example, mentioning “securities” could generate opposition from the Securities and Exchange Commission (SEC). “I borrowed a phrase from the Uniform Commercial Code that did not mention any specific thing but was nevertheless extremely broad: ‘all goods and articles … and all services, rights and interests in which contracts for future delivery are presently or in the future dealt in.’ Congress adopted that language and the courts subsequently confirmed that its breadth included a vast array of things, including securities,” he says.
That language not only captured all of the planned non-agricultural futures at that time but opened the door to futures trading in abstractions like indexes, weather and climate patterns and events carrying economic risk.
Above all, Johnson adds, this effort in the aggregate has saved the futures community billions of dollars in compliance costs and generated similar revenues from new product expansion.
As great as an achievement as that was for the future of the futures industry — it was not Johnson’s only major contribution.
Johnson served as chairman of the CFTC from 1981 to 1983, reaching an agreement with then SEC Chairman John Shad, known as the Johnson-Shad Accord, allowing the first stock index futures to trade under exclusive CFTC regulation and, more important, resolving considerable legal doubt whether futures contracts could legitimately call for settlement in cash, which opened the way for many of today’s futures contracts not only in indexes but in other phenomenon where physical delivery is either impossible or cumbersome.