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

Agents of Change

At that time exchanges were applying with the CFTC to create futures on stock indexes and that drew a lot of SEC attention. “What [Shad] was agreeable to was as long as the index contained a lot of stocks, or was broad based as we called it, and as long as the contracts were cash settled so no one’s out there scrambling to buy stocks in the stock market, then he could live with that under CFTC exclusive jurisdiction,” Johnson says.

That approval also completely took off the table the listing of single stock futures for trading for trading on U.S. exchanges. On that point they “agreed to disagree.”

Johnson has also contributed to the development of the new financial instrument division of a New York exchange and the creation of the world’s first futures contracts on a U.S. Dollar Index, the European Currency Unit and emerging market Brady Bonds.

As for the future of the derivatives industry, Johnson says there are so many possible contracts that can be developed on the retail level along the lines of futures contracts that are risk management tools for the things that the retail public worries about like their interest rates and their mortgages.

“Every home owner with a variable mortgage rate has the same kind of risk that a bank does when it makes a loan. The bank is probably hedging it’s risk that interest rates will fall, but the homeowner has no way to hedge that interest rates will rise,” Johnson says.” “Or health insurance. There’s no reason in the world why you couldn’t develop, if you could get the right data, a health insurance index that would be traded in sizes of $2,500 so when I get a notice from my employer that health rates are rising this year again, maybe I can find something in the futures market of a size that I can handle that will help offset some of that.”

Johnson has an extensive international practice, advising exchanges and institutions located outside the United States, including Canada, France, Hong Kong, Japan and Russia.

In 1980, Johnson took some time in the southeast coast of Puerto Rico to write the first modern treatise in the field, originally named “Commodities Regulation” but now called “Derivatives Regulation,” is well-established as the leading authority in its field through 25 years of continuous print and four editions.

A funny thing is that, for someone who’s now such an expert in the field, he was reluctant at first about what that kind of practice would mean for his career.

“At that time I was in antitrust and that was the most profitable department at any law firm, and I was doing just fine, thank you!” he says, adding, “in retrospect it was a brilliant move.”

Johnson was honored by the CBOT a year ago for doing the legal work, which required changing federal law, on the world’s first interest rate futures contract. “The product was a Rich Sandor creation but I note it as a major personal contribution because something like 50% of all futures volume in the world today involves interest rates,” he says.

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