1 

 MINUTES OF THE MEETING OF THE

U.S. COMMODITY FUTURES TRADING COMMISSION’S

AGRICULTURAL ADVISORY COMMITTEE 

April 11, 2019 

 

The Agricultural Advisory Committee (AAC) convened for a public meeting on 

Thursday, April 11, 2019, at 8:30 a.m., at the Marriott Kansas City Overland Park, located at 

10800 Metcalf Avenue, Overland Park, Kansas. The meeting consisted of three panels. Panel I 

delved into the issue of the future of futures commission merchants (FCMs). Panel II discussed 

innovations in agricultural cash markets and futures market operations. Panel III examined the 

role of matching algorithms and the evolution of electronic trading in agricultural markets. The 

panels were followed by a robust discussion identifying potential work streams that could help 

generate actionable recommendation to the Commission on select issues. 

AAC Members in Attendance

Joe Barker, Representative, National Council of Farmer Cooperatives 

Chris Betz, Representative, Michigan Agri-Business Association

Larry Birgen, Representative, National Farmers Union (by telephone)

Darryl Blakey, Manager of Legislative Affairs & Market Regulatory Policy, National 

Cattleman’s Beef Association

Robbie Boone, Senior Vice President-Government Affairs, Farm Credit Council 

Amanda Breslin, Representative, Coalition for Derivatives End Users 

Robert Creamer, Chairman, Futures Industry Association/Principal Traders Group (by telephone)

Neal Driscoll, Representative, Managed Fund Association (by telephone) 

Edward Gallagher, President, DFA Risk Management, National Milk Producers Federation 

Matt Hines, Risk Management Consultant/Licensed Broker, Loewen and Associates, Inc., 

American Farm Bureau Federation

Thomas Hogan, Vice Chairman-Board of Directors, Cocoa Merchants Association of America

(by telephone) 

Thomas Kadlec, Representative, Futures Industry Association

Chris Klenklen, National Association of State Departments of Agriculture (by telephone)

Randy Melvin, Chairman-Risk Management Action Team, National Corn Growers Association 

John Owen, Chairman-Rice Futures Contract Working Group, USA Rice Federation

Monte Peterson, Director, American Soybean Association (by telephone) 

Mark Scanlan, Senior Vice President of Agriculture and Rural Affairs, Independent Community 

Bankers of America (by telephone) 

Stephen Strong, Vice Chair-Board of Directors, North American Export Grain Association

Justin Tupper, Co-Chair-U.S. Cattlemen’s Association (USCA), Marketing & Competition 

Committee and Board of Directors Member, USCA

Hayden Wands, Chairman-Commodity and Agricultural Policy Committee, American Bankers 

Association (by telephone)

Speakers in Attendance

Matthew Kulkin, Director, Division of Swap Dealer and Intermediary Oversight, CFTC 

 (Panel 1) 

Joe Barker, AAC Member, President, CHS Hedging, LLC (Panel 1)
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Thomas Kadlec, AAC Member, President, ADM Investor Services (Panel 1)

Jim Heneghan, Senior Vice President-Agribusiness, Gro Intelligence (Panel 2)

Jay Froscheiser, Senior Vice President-Financial Analytics, DTN (Panel 2)

Mark Pryor, Chairman and CEO, The Seam (Panel 2)

Tim Andriesen, Managing Director-Agricultural Products, CME (Panel 3)

John Scheerer, Senior Director Global Command Center, CME (Panel 3)

Andrew Vrabel, Executive Director, Global Head of Investigations, CME (Panel 3)

CFTC Commissioners and Staff in Attendance 

J. Christopher Giancarlo, Chairman and AAC Sponsor 

Rostin Behnam, Commissioner 

Dan Berkovitz, Commissioner 

Dawn Stump, Commissioner 

Brian Quintenz, Commissioner 

N. Charles Thornton III, AAC Acting Chair/Designated Federal Officer (DFO), Director of the 

Office of Legislative and Intergovernmental Affairs

Christa Lachenmayr, Economist, Division of Market Oversight 

I. Opening Remarks

Mr. Thornton called the meeting to order. 

Chairman Giancarlo began the meeting by noting that all five CFTC commissioners were 

in attendance, to highlight the importance of the event, and that the meeting represented probably 

only the second Commission meeting ever held outside of Washington, D.C. Chairman 

Giancarlo also paid homage to Kalo Hineman, former CFTC Chairman, native Kansan, and 

livestock producer, who was responsible for the creation of the ACC. He noted the importance 

of advisory committees to the Commission’s work, and thanked the attendees for coming. 

Next, Commissioner Quintenz gave his opening remarks, thanking Chairman Giancarlo. 

He echoed the Chairman’s remarks and stated that the more that the Commission engages with 

the public through advisory committees the better it is able to do its work. 

Then, Commissioner Behnam gave his opening remarks. He noted the importance of the 

agricultural community to the Commission’s work. He thanked the Chairman and Mr. Thornton 

and Ms. Lachenmayr in organizing the event. 

After that, Commissioner Stump gave her opening remarks, thanking all and especially 

those that organized including Mr. Thornton and Ms. Lachenmayr. She thanked the Chairman 

for ensuring that the Commission continues to serve the needs of the agricultural community. 

Finally, Commissioner Berkovitz also provided his opening remarks. He thanked the 

Chairman, Mr. Thornton, Ms. Lachenmayr, and all who helped make the meeting possible. He 

emphasized that the agricultural markets are the core of the Commission’s jurisdiction and that 

he looked forward to learning more to help better regulate these markets. 
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 Following the opening remarks, Mr. Thornton had the AAC members introduce 

themselves. 

II. Panel I: The Future of FCMs

After introductions, Mr. Thornton announced that the first panel would focus on the 

current operational and regulatory environment for FCMs. 

Mr. Kulkin began the panel by describing trends facing the FCM industry broadly. With 

regard to the number of FCMs with customer assets, he observed a significant decrease over the 

past ten years. He noted that some FCMs have transitioned to introducing brokers, which means 

that customers have access to the same services, but their transactions are cleared through a 

different FCM. When looking at the total amount of customer assets held by FCMs, while the 

number of firms has gone down in recent years, the amount of assets has remained relatively flat. 

He noted that there has been an uptick in secured assets tied to swaps. He also observed that 

FCMs have increased the number of hedging tools to improve their service offerings. He 

concluded by stating that the panelists should consider the following market factors in their 

discussions: (1) costs; (2) market evolution; (3) customer evolution; and (4) macroeconomic 

market forces.

Mr. Barker presented next, discussing the trends facing the FCM industry in further 

detail. The first trend he described was the trend towards electronic trading. This has resulted in 

greater efficiency in the marketplace, better service, and lower costs. In addition, he noted the 

regulatory burden that FCMs face has increased greatly in the last ten years, which has increased 

their costs.

Finally, Mr. Kadlec discussed three fundamental changes facing the FCM industry. First, 

he observed that the conversion from pit to electronic trading has been positive, but that required 

a significant adjustment by market participants. Second, the demutualization of exchanges has 

shifted the power structure from FCMs to the exchanges, which control both clearing and pricing

of trading and other services. Third, he noted that the 2007-2008 financial crisis had the 

dramatic economic effect of driving interest rates to zero and causing some FCMs to go out of 

business. He observed that the rules that came out of the financial crisis caused the banks to 

recapitalize and that FCMs responded to new rules for segregated funds and residual interest, 

etc., by charging for capital and reporting financials. He stated that the benefits of these new 

rules to the agricultural community were increased control standardization, efficiency, and 

accuracy. He suggested some synergies that the AAC could focus on. These include: (1) 

passing position limit rules and providing guidance on anticipatory and bona fide hedging; (2) 

working towards specifically identified cybersecurity protocols; and (3) focusing regulatory 

efforts in order to enhance exchange efficiency, standardization, and delivery mechanisms. 

Questions or comments from the AAC membership followed. Generally, the concerns 

and discussion raised in this session included concern regarding the number of FCMs that have 

left the market and the resulting increase in costs and its impact on risk management, regulatory 

clarity, and how to developing and improve the cyber protocol. 
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[Break]

III. Panel II: Cash Market Innovations 

After the break, Mr. Thornton called the meeting back to order.

Mr. Heneghan began the panel by stating that he would be discussing agricultural data 

and how this data might be used for innovation in cash and financial markets and might be useful 

for regulatory purposes in these markets. The main issues with agricultural data include: (1) 

difficulties in maintaining spreadsheets, legacy files, and processes; (2) disparate data sets that 

are difficult to combine and analyze; (3) data in different units, languages, and frequencies; (4) 

data updating, quality and integrity requirements; and (5) large scale and scope of agricultural 

data across many crop-country pairs. In order to address the issues, Gro Intelligence identifies, 

maps, and integrates data through a sophisticated standardization process. This combined 

agricultural data can be used to replace spreadsheets that contain multiple sources of data; used 

in various calculations including deliverable supply calculations; used in physical and futures 

price convergence calculations; used in futures delivery calculations; and used in understating 

data on enumerated agricultural commodities.

Mr. Froscheiser presented next and discussed the cash grains data they provide and how 

they provide services on both sides to producers and agribusiness providing data that helps 

inform their decision making. This includes: (1) providing data-backed marketing advice and 

strategies; (2) providing data that helps inform selling decisions; (3) providing on-demand 

pricing information; and (4) providing a portal to centralize offers. He stated that their data 

services help producers and agribusiness better deal with competition, changing technology, 

tightening margins, greater industry consolidation, and market volatility. 

Finally, Mr. Pryor discussed how his company works within the cash markets for 

commodities (mainly the cotton industry) to provide trading and technology solutions. They 

provide anonymous trading with electronic warehouse receipts as collateral instruments. Data 

that is collected is made publicly available in real time and increases transparency. He then 

discussed new innovations and new possibilities including the tokenization of assets. These 

tokens would be non-fungible and traded on a decentralized distributed ledger. This new 

technology would allow trading to move with the commodity beyond the warehouse to its end 

user. Another new innovation on the horizon that he discussed is the interplanetary file system 

(IPFS), a protocol that is set to change the way files are sent and received on the internet. IPFS 

would facilitate large file distribution and data integrity assurance on a peer-to-peer, distributable 

file system. Last, he discussed the innovation of Ricardian contracts, a digital agreement that 

defines the terms and conditions of an interaction between two or more peers, that is 

cryptographically signed and verified. These contracts are readable by humans and machines. 

Questions or comments from the AAC membership were also taken. Generally, the 

concerns and discussion raised in this session included: (1) the quicker pace at which technology 

is being adopted in China and India than in the U.S.; (2) how agricultural data is revolutionizing 

interaction in the market; and (3) how the data can be used in even better ways to make the 

marketplace even more efficient. 
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IV. Panel III: Evolution of Electronic Trading in Agricultural Markets: 

The Role of Matching Algorithms 

Mr. Andriesen began the final panel by stating that he would discuss the role of matching 

algorithms in the electronic trading space. He noted that in an electronic market a set of rules 

must be established to make matching decisions. This space has been transformed by three 

dynamics in the electronic trading space: (1) things can happen in parallel with multiple bids and 

offers at the same time; (2) best bids and offers not being on the book at the same time; and (3)

being able to see the depth of the book. 

Next, Mr. Scheerer discussed how the rules and match algorithms work. He explained 

that Globex, the electronic trading platform, uses three basic algorithms: (1) First-in-First-Out 

(FIFO) (100%); (2) Pro-Rata (100%); and (3) a combination of the FIFO and Pro-Rata. Mr. 

Scheerer also discussed the K Matching Algorithm in grain futures. 

Mr. Vrabel discussed spoofing and trade practice reviews of trades using the various 

algorithms. (Spoofing is the practice of bidding or offering with the intent to cancel the bid or 

offer before execution.) He discussed how the rules can deter spoofers. For example, in certain 

cases greater depth and liquidity must be maintained and as a result spoofing becomes much 

riskier in case a spoof order is filled. 

Questions or comments from the AAC membership were also taken. Generally, the 

concerns and discussion raised in this session included: liquidity in market events, factors that 

help determine if there is spoofing, the impact that speed can have on the matching algorithm in 

which situations the different algorithms are used, and details regarding how the algorithms 

work. 

V. Other New Business

 

Mr. Thornton turned the floor over to Ms. Lachenmayr for a recommendation to create an 

AAC subcommittee. Ms. Lachenmayr proposed forming a subcommittee to review the 

procedures and solicit recommendations for guidance to exchanges concerning the 

implementation schedule for amendments to futures contracts with open interest that are based 

on enumerated (Section 1(a)9) agricultural contracts. Following Ms. Lachenmayr’s staff 

recommendation, Mr. Thornton made a motion to create an AAC subcommittee which was 

seconded. Mr. Thornton then called for a vote. All voted in favor of the motion and none 

opposed. The motion was passed. 

 Following the vote, and before the closing remarks, Mr. Thornton opened the floor for 

comments from the AAC membership. The comments focused on the importance of bringing 

broadband to the rural communities, and the idea of a daily Commitment of Traders Report. 

VI. Closing Remarks
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In closing, the Chairman and Commissioners present all expressed enthusiasm for the 

excellent discussion and thanked all for their hard work. 

Mr. Thornton adjourned the meeting at 12:00 p.m. 

I hereby certify that the foregoing minutes are accurate.

_____________________________________ November 20, 2019 

N. Charles Thornton III Date 

AAC Acting Chair/Designated Federal Officer