Nasdaq Backs One Trading’s Push to Rethink Derivatives Market Infrastructure

Nasdaq Ventures’ strategic investment in One Trading, announced last week, could open the door to a different approach to derivatives market infrastructure, bringing technologies developed for digital asset trading into more traditional financial markets. The European regulated derivatives venue has built a platform that integrates execution, risk management and settlement, with an architecture designed to support continuous trading, real-time margining and automated settlement.

Bringing Digital Asset Innovation into Traditional Finance

One Trading’s technology has its origins in the digital asset markets, where perpetual futures have emerged as an alternative to conventional derivatives contracts. These instruments allow traders to maintain exposure without fixed expiry dates, while the associated trading and margining arrangements can offer greater capital efficiency. The company’s ambition has been to bring some of these characteristics into a regulated environment capable of supporting derivatives across multiple asset classes.

One Trading, which emerged from the separation of the exchange business from Bitpanda, subsequently developed its own trading infrastructure and secured regulatory authorisation in the Netherlands. The company operates a MiFID II-regulated Organised Trading Facility (OTF), authorised by the Dutch Authority for the Financial Markets (AFM) and De Nederlandsche Bank (DNB).

Its approach challenges several established conventions of derivatives market infrastructure, particularly the separation of execution, clearing-related risk management and settlement into distinct systems and processes.

Rethinking Margin and Settlement

Traditional derivatives markets typically rely on central clearing arrangements in which margin requirements reflect the risk characteristics of individual contracts, portfolio exposures and potential price movements between settlement cycles. One Trading has developed an integrated model that continuously recalculates margin requirements and settles profit and loss at much shorter intervals.

“Where typically a clearing house will price margin a few times a day, we’re doing it twice a second on every single position that’s on our platform,” he says. “We’re constantly repricing margin and understanding the risk profile of everything. Every 60 seconds, we’re realising the P&L between all those counterparties. You’re also reducing your counterparty risk to 60 seconds, because every 60 seconds that P&L realises.”

The approach is designed to reduce the amount of collateral participants need to maintain against potential market movements, while allowing exposures across different contracts to be managed on a portfolio basis.

Barraclough cites equity derivatives referencing companies such as MicroStrategy and Apple, alongside S&P 500 futures, as examples of instruments with different volatility characteristics that can nevertheless be managed through a consistent real-time margining framework.

The company also claims that its model eliminates the need for a mutualised default fund, a central component of conventional CCP risk management arrangements. That represents a significant departure from traditional clearing structures, although more frequent settlement doesn’t eliminate the possibility of losses arising from extreme market movements, liquidity shortages or participant defaults.

One Trading says it has conducted extensive stress testing, including simulations based on the London Metal Exchange nickel crisis in 2022. According to Barraclough, testing undertaken for the AFM demonstrated how its risk and margining arrangements would have responded to those conditions. The platform also incorporates conventional market controls, including order-entry restrictions, trading pauses and automated deleveraging.

An Integrated Architecture Built for Continuous Markets

The platform’s risk management model is closely connected to its underlying technology architecture. Unlike conventional arrangements in which trading, risk and settlement systems communicate through separate interfaces, One Trading has designed these functions to operate together, minimising the delays associated with transferring information between components.

“It’s all sitting in the same box,” says Barraclough. “If you think about calculation time and everything else, you don’t really want these things running as separate modules. We’ve spent a lot of time looking at how we maximise throughput and have extremely fast latencies, such that the decisions we’re making are as quick as possible on the exchange. We can get to millions of orders a second without compromising on latency.”

One Trading claims its infrastructure can process approximately seven to eight million orders per second while maintaining latency below 100 microseconds, including under heavy load. The platform runs in the cloud, using techniques including CPU core pinning and infrastructure optimisation to deliver performance more commonly associated with dedicated physical trading hardware.

Earlier testing conducted with Amazon Web Services demonstrated sustained processing of approximately 400,000 orders per second over 24 hours, equivalent to around 36 billion orders. Those results provide a historical benchmark, although the company’s latest performance figures have not been independently verified. Maintaining that performance continuously also requires an architecture capable of accommodating software updates and infrastructure failures without scheduled trading interruptions.

“We’ve built the venue so that it never goes down,” explains Barraclough. “We built it in the design of a nuclear power plant, and the whole point behind that is we have this concept of a leader and a follower. The leader is always running, and the follower follows it. If anything breaks with the leader, we switch to the follower. If we’re making any code updates, we deploy them to the follower, and then we switch over.”

This approach is intended to avoid the maintenance windows that have traditionally been built into exchange operating schedules, including interruptions required for software updates and memory management.

It also addresses a challenge facing exchanges considering extended or continuous trading hours: maintaining operational resilience while the systems responsible for execution, risk management and settlement remain active.

What Nasdaq Brings to the Relationship

Nasdaq’s investment gives One Trading a potential route into a much larger institutional market. The exchange operator already has extensive experience in trading technology, market infrastructure and derivatives markets, alongside established relationships with exchanges, brokers and institutional investors.

For One Trading, the relationship could provide opportunities to apply its technology to conventional derivatives products and explore new market structures with an established global infrastructure provider. However, Barraclough emphasises that discussions remain at an exploratory stage.

“Right now, our work together is really focused on exploring the art of the possible,” he says. “You’ve probably seen publicly that Nasdaq wants to do a lot more in the 24/7 space, with some of the work they’re doing in developing the digital liquidity network. For us, we have a lot of experience in the 24/7 space. So there’s a bit of looking at what their clients are asking for, what we have, and where we can help them.”

Alongside operating its own regulated venue, One Trading is developing a white-label business that allows partners to offer its derivatives products through their existing platforms. Under one arrangement, tied agents can distribute One Trading products directly to their retail customers, who trade on One Trading’s infrastructure under its terms and conditions. The model allows brokers to introduce derivatives capabilities without developing and operating the underlying exchange technology themselves.

Barraclough sees opportunities across retail brokerage, hedge funds, corporate clients and institutional market participants seeking access to continuously available derivatives liquidity.

A Different Model for Derivatives Infrastructure?

The growing interest in extended trading hours is placing additional demands on the infrastructure supporting financial markets. Matching engines and connectivity are only part of the challenge; collateral management, risk controls and settlement arrangements must also accommodate longer operating periods. One Trading’s architecture offers an example of how these functions could be brought together within a continuously operating environment.

Whether that model can be applied widely across traditional derivatives markets remains an open question. Established clearing arrangements, regulatory requirements and institutional risk management practices create challenges that go beyond technology performance alone.

Nasdaq’s investment provides an opportunity to examine how far the approach can extend beyond digital assets. The outcome could have implications for the design of future derivatives venues and the relationship between trading, risk management and settlement as markets move towards continuous operation.