03/09/21 11:58:27

40 is the new 30 – DAX to be expanded

On September 20, the largest reform of the selection indices to date will be completed with the expansion of the DAX to 40 companies. This is because a number of things will have changed not only for the leading index, but also for the number two, the MDAX. In addition to size, these changes include a profitability rule, simplified calculation and segment affiliation. An overview.

3 September 2021. FRANKFURT (Börse Frankfurt). It all started with a market survey in the fall of 2020, in which around 600 participants of all types took part: Financial institutions, individuals, companies, associations, etc. The proposals, some of which were controversial, were intensively discussed by the index provider STOXX, also with regard to feasibility and impact on the entire index world. The first adjustments were implemented at the regular index date in December, and now the final step has been taken with the inclusion of ten further companies.

The most important changes

  • The ranking as a basis for promotion or relegation is now based on only one parameter, market capitalization. Previously, stock market turnover was also relevant.
  • However, a minimum purchase is required.
  • Listing in the General Standard segment of the Frankfurt Stock Exchange is sufficient; previously, the Prime Standard segment was required.
  • New DAX companies must demonstrate profitability.
  • Only those who submit financial reports belong to the DAX family.
  • Companies must have an audit committee on the supervisory board.
  • The DAX is expanded to 40 members, the MDAX is reduced to 50.
  • Its composition is now reviewed every six months, not just in September.

Reasons for expanding the DAX to 40

One of the results of the above-mentioned market consultation was the desire for more diversification in the DAX. This is due, on the one hand, to the number of stocks and, on the other, to the characteristics of the German economy, which is dominated by large chemical, automotive, software and industrial companies. Alternatives to the expansion to 40 stocks would be more complex rules to limit individual sectors and stocks or to weight all companies equally. The DAX should be comprehensible for all market participants, for professionals as well as for stock market newcomers. The largest 40 companies represent around 80 percent of the market capitalization in the Regulated Market, i.e. in the Prime and General Standard, and can be considered representative.

The most asked question: does the score change from Friday to Monday because of the new companies in the index?

No, because the basis for calculation will be adjusted accordingly. The 40 members in the index will be re-linked on the basis of their closing price on September 17, as it is called in technical jargon. The then valid weights according to market capitalization will be used for the calculation. Only when the new stock market prices of the 40 shares are quoted shortly after 9 a.m. on Monday morning does the DAX level change as on any other trading day.

Debates around ESG criteria

The proposal to include an ESG dimension such as the exclusion of controversial weapons in the leading indices triggered many discussions with hardly reconcilable views of market participants. Therefore, this topic will be treated, reviewed and developed separately.​​​​​​

3 September 2021, © Deutsche Börse AG

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