loor traders on the commodity futures exchanges trade either as floor bro-F kers or as speculators. Floor brokers fill orders originating from commission houses and other off-floor participants, and these brokered orders are executed for a fixed commission fee. In contrast, speculators buy and sell for their own accounts and are generally thought to provide market liquidity and minimize price fluctuations.' Currently floor traders are permitted to trade as both brokers and speculators. This practice of dual trading creates a potential conflict of interest when traders are faced with a choice between executing a brokered order at the same time they wish to trade for their own accounts.
Among its many responsibilities as the sole regulator of futures trading the Commodity Futures Trading Commission (CFTC) must decide if floor traders should be allowed to continue dual trading. Faced with the dilemma of trading a brokered order before trading for a personal account, the "honest" trader feels a strong moral and professional obligation to execute the brokered order first and in good faith. Public protection from "dishonest" traders, then, is the apparent motivation for the legislative mandate requiring the CFTC to investigate dual trading.
One solution proposed by the CFTC is to eliminate dual trading altogether. Traders would then be permitted to trade either as brokers or speculators, but not both. Implementation of this proposal could benefit the public through a reduction in regulatory costs and the elimination of any potential conflict of interest by floor traders. However, the public could be forced to pay higher brokerage fees if, indeed, speculation is a profitable activity.
Conceptually, it is helpful to distinguish between two major types of costs andlor benefits associated with the question of dual trading. On the one hand, ' Holbrook Working (1977a, 1977b) discusses various types of speculators and their respective objectives. For our purposes, these distinctions are not important.