D.he Deutsche Börse increases the number of shares in the German standard value index Dax from 30 to 40. This means that the Dax will map the largest listed companies in Germany even more comprehensively. Ultimately, there is an upward shift because the number of stocks in the index of medium-sized stocks, the MDax, drops from 60 to 50 at the same time.
Even earlier, in December, the rule comes into force that only companies can be included in the Dax that have previously achieved an operating profit (before interest, taxes, depreciation and amortization (Ebitda)) in the last two financial reports.
As of March 2021, the exclusion rules will be tightened to the extent that a breach of the reporting obligation immediately leads to the index exclusion after a 30-day warning period. The requirement is the submission of certified business reports and quarterly quarterly reports. In return, the stock exchange does not require DAX companies to be listed in the highest segment, the Prime Standard of the Frankfurt Stock Exchange. The listing on the regulated market will be sufficient in future. This new rule will be introduced in order to be able to react independently and more quickly in the event of a rule violation.
Market capitalization as the only criterion
Starting next year, the composition of the index will also be reviewed every six months in March and September, so far this has only been done in September.
From September 2021, market capitalization will be the only criterion for index inclusion for all indices in the Dax family. The exchange turnover is no longer taken into account; instead, a minimum liquidity is required.
Finally, from March onwards, all newcomers to the DAX family must comply with the recommendations of the German Corporate Governance Code with regard to an audit committee on the supervisory board. A transition period until September 2022 applies to existing members.
After the scandal surrounding the now insolvent financial service provider Wirecard and the subsequent inclusion of the previously unprofitable food supplier Delivery Hero, there was a lot of criticism of the market operator’s regulations. At the end of June, Deutsche Börse announced a revision for the Dax family and made suggestions. In the past few weeks, market participants such as banks, fund companies and associations have been able to comment on this.
The original proposal to exclude companies involved in controversial weapons did not succeed. “We received a very heterogeneous opinion on the topics of sustainability and ESG outside of the proposals we made on governance. The fundamental question is raised from many sides as to whether these criteria should play a role in the selection of Dax members. That is why we will continue the exchange with market participants, ”says Stephan Flägel, global head of Benchmarks & Indices at the Deutsche Börse subsidiary Qontigo. “Sustainable investing is and will remain one of the most important trends in the financial markets and will fundamentally change investment behavior in the coming years. The ESG issue is a very high priority for Qontigo. “
“With the intended changes, the stock exchange is taking a step in the right direction,” says Silke Schlünsen, Head of Corporate Broking at the American investment bank Stifel. However, a larger step would have been desirable in order to obtain more continuity in the composition of the index. “This goal will hardly be achieved with the upcoming changes. Frequent changes between the indices are still inevitable. ”The Dax is also hardly more attractive for investors. What is missing is a single, large leading index based on the model of the S&P 500. This would be an attractive opportunity for domestic investors as well as for investors from all over the world to invest broadly in the German economy. Many global investors in particular wanted a diversified index that also included small and medium-sized companies.
Marc Decker, head of asset management at the private bank Merck Finck, calls the reform half-hearted despite the right direction. There are greater weaknesses than the inadequate mapping of the performance of the German economy, such as the underdeveloped share culture and the relatively low market capitalization of German corporations. The increase is correct, but ten additional companies made no substantial difference. At the same time, there would be negative cascade effects for the M-Dax and S-Dax. “It would have needed a fundamental reform of the index world.”
“An even larger index is of little use as long as we lack suitable stocks. In Germany we finally need a real securities culture that makes listing attractive and worthwhile for companies, ”says Florian Toncar, Parliamentary Director of the F.D.P. Group in the Bundestag. You need effective protection against fraud and manipulation, better conditions for employee shares and an end to the unfortunate discussion about a new share tax. For startups and larger medium-sized companies in particular, entry barriers should be lowered.