Stoxx consults market on proposals to overhaul DAX

Oct 5th, 2020 | By | Category: ETF and Index News

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Index provider Stoxx has kicked off a market consultation process to consider proposals regarding the reform of the DAX index.

Stoxx consults market on proposals to overhaul DAX

The DAX’s methodology has come in for much criticism following the implosion of Wirecard, a now insolvent German payment processor which was until 21 August a member of the index. (Image © Leo Molatore)

The DAX is the pre-eminent barometer of German equity performance and the underlying index for ETFs holding many billions of euros of assets.

The index’s methodology has come in for much criticism following the implosion of Wirecard, a now insolvent German payment processor which was until 21 August a member of the index.

Shares in Wirecard lost more than 99% of their value during the company’s stint in the index, which commenced on 24 September 2018. Its former CEO and COO, and other board members and executives have been arrested or otherwise implicated in criminal proceedings.

Notable ETFs to track the index include the €5.8 billion iShares Core DAX UCITS ETF, the €3.5bn Xtrackers DAX UCITS ETF, and the €1.0bn Deka DAX UCITS ETF.

Stoxx, which administers the index, had already pushed through changes that facilitated the accelerated removal of Wirecard in August, earlier than it otherwise would have been. The newly initiated consultation exercise will explore more far-reaching measures.

Proposals up for consideration include enhanced qualification criteria and, perhaps most notably, expanding index membership to 40 constituents. This is up from its current composition of 30. Expanding the index by a third would increase diversification and reduce the influence of any one constituent.

The enhanced qualification proposals include the introduction of a profitability requirement for companies otherwise eligible for accession to the index; the establishment of quarterly reporting and annual audited reporting, with sanctioning options in cases of non-compliance, and proof of an audit committee on the supervisory board.

And in a nod to responsible investing, the proposals also include a rule to exclude companies with revenues of more than 10% from controversial weapons, though this is not likely to have any immediate effect on index composition.

Alongside this, the index methodology will be reviewed every six months, instead of annually, to enable the index to respond more quickly to similar such scenarios in the future.

The proposals are unlikely to trigger too many objections, although the index’s overhaul has come too late for ETF issuer Vanguard which ditched the benchmark in favour of the broader FTSE Germany All Cap Index for its German equity UCITS ETF.

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