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The 0 million average daily volume of trades executed electronically by the Madoff firm off the exchange equals 9% of the New York exchange's. Madoff's firm can execute trades so quickly and cheaply that it actually pays other brokerage firms a penny a share to execute their customers' orders, profiting from the spread between bid and asked prices that most stocks trade for.
He viewed payments for order flow as a normal business practice: "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings.
Madoff's personal and business asset freeze created a chain reaction throughout the world's business and philanthropic community, forcing many organizations to at least temporarily close, including the Robert I.
Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation.
Madoff said he made up for the cost of the hedges, which could have caused him to trail the stock market's returns, with stock-picking and market timing.
"Typically, a position will consist of the ownership of 30–35 S&P 100 stocks, most correlated to that index, the sale of out-of-the-money 'calls' on the index and the purchase of out-of-the-money 'puts' on the index.
Ponzi schemes typically pay returns of 20% or higher, and collapse quickly.
The Journal concluded Madoff's use of futures and options helped cushion the returns against the market's ups and downs.
The sale of the 'calls' is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of the 'calls'.
The 'puts', funded in large part by the sales of the 'calls', limit the portfolio's downside." In his 1992 "Avellino and Bienes" interview with The Wall Street Journal, Madoff discussed his supposed methods: In the 1970s, he had placed invested funds in "convertible arbitrage positions in large-cap stocks, with promised investment returns of 18% to 20%", Mitchell Zuckoff, professor of journalism at Boston University and author of Ponzi's Scheme: The True Story of a Financial Legend, says that "the 5% payout rule", a federal law requiring private foundations to pay out 5% of their funds each year, allowed Madoff's Ponzi scheme to go undetected for a long period since he managed money mainly for charities.
He has built a highly profitable securities firm, Bernard L.
Madoff Investment Securities, which siphons a huge volume of stock trades away from the Big Board.