Deutsche Börse pushes for Dax overhaul after Wirecard debacle
Exchange operator proposes enlarging blue-chip index and only admitting profitable companies
The chief executive of Deutsche Börse, Theodor Weimer, wants to enlarge Germany’s Dax and only admit profitable companies, part of a far-reaching overhaul of the country’s leading stock market index triggered by the Wirecard accounting scandal.
The German exchange operator on Monday announced a series of reform proposals to revise the membership rules and improve the quality of companies that are listed in the blue-chip Dax index.
The overhaul comes as German regulators seek to avoid a repeat of the supervisory failures that allowed Wirecard to build up a €1.9bn hole in its accounts before it fell into insolvency in June, becoming the first sitting member of the Dax to do so.
When the once high-flying payments company entered the Dax in 2018, replacing German lender Commerzbank, it displayed a lack of basic corporate governance requirements. Wirecard’s supervisory board did not have an audit committee, and it repeatedly missed the statutory deadline for the publication of quarterly and annual results.
On Monday Deutsche Börse proposed that only profitable companies should be admitted to the index, and said that those who do not publish quarterly reports on time should be expelled.
It also suggested increasing the number of constituents in the index, making it less exposed to the vagaries of individual members.
“It is no secret that I personally would welcome the expansion of the DAX 30 to a DAX 40”, said Mr Weimer in an emailed statement.
Selection criteria for the Dax at present only focus on quantitative criteria such as a stock’s market capitalisation and liquidity. With just 30 members, it is one of the smallest blue-chip indices in Europe, compared with 40 in Italy and France and 100 in the UK.
Uwe Streich, equity strategist at German public-owned lender LBBW, said the size of a country’s blue-chip index was partly a function of the depth of its stock market.
“In 1988, when the Dax was founded, Germany had relatively few big listed companies. Back then, having 30 constituents was rather ambitious,” he said. Today, 50 Dax members could be justified, he added.
Large investors welcomed the idea of an enlarged Dax. “This would lower the relative weight of the current constituents,” said Jürgen Hackenberg, head of equities diversified at Union Investment, Germany’s third-largest asset manager.
Christian Strenger, a corporate governance specialist and former head of asset manager DWS, said the Dax needed to be upgraded to live up to its image of reflecting “the elite of the German economy”.
“In future, quantitative criteria [for Dax membership] should be emphasised as much as possible,” he said.
Mr Strenger added that while the reform ideas were a step into the right direction, “many details need to be discussed”, such as the benchmark for a company’s profitability. A company’s earnings before interest, taxes, depreciation and amortisation “is a rather weak benchmark, this should be tightened”, he said.
Investors now have until November 4 to file their response to Deutsche Börse’s proposals. The exchange operator will publish the results of the consultation and any decision on changes by November 23.
The arrival of Wirecard’s successor in the Dax, online food delivery group Delivery Hero, also raised eyebrows among analysts and investors because it has never generated any profits since it was founded in 2011.