Market Consultation
Market Consultation

Methodology changes to headline DAX® Selection indices


About the consultation

STOXX Ltd., Qontigo's leading provider of innovative, tradable and global index concepts, has decided to conduct a market consultation on the headline DAX® Selection indices (DAX®, MDAX®, SDAX® and TecDAX®). Indices that derive their composition from them will be indirectly affected by the same changes. The objective is to introduce more selective index membership measures, align them with international index standards, while maintaining the transparency, predictability and objectivity of a rules-based framework.

We value your opinion on the topics of index rules simplification, number of constituents in the indices, introduction of quality criteria and introduction of financial health criteria.

The market consultation may or may not lead to changes of the current index rules.

Process and timeline

We invite all stakeholders and interested third parties to submit responses via this dedicated webpage. Responses submitted via any other channels will not be considered.

We intend to publish the results of the market consultation, as well as an announcement about potential changes to the index methodology, before November 23, 2020, 22:00 CET. The consultation is open to all market participants from October 5, 2020, until November 4, 2020, 20:00 CET.

After the consultation, we will make the stakeholders’ feedback received in the consultation and the summary response to those comments available.

In case the consultation leads to an amendment of the index rules, we intend to start introducing the changes effective from March 2021 review. The timetable for the implementation will be communicated depending on the final decision taken.

Respondent details

The personal contact information provided in the next sections will only be used in case it is deemed necessary to contact the respondent with regards to the responses to the market consultation. 

For more information about your privacy and data protection, please refer to STOXX Privacy Notice.


Consultation topics

The current Market Consultation proposes to modify the headline DAX Selection indices (DAX, MDAX, SDAX and TecDAX) and indices that derive their composition from them by acting along three dimensions (supporting material for this section can be found here):

1. Qualification Criteria

1.1 Proposal: Replacement of requirement of listing on Prime Standard with requirement of listing on Regulated Market of Frankfurt Stock Exchange.

Description: Companies listed on the Regulated Market, and regardless on which of its segments, will be eligible for index inclusion. The description of the structure of the regulated market can be found here.

Aim
: Increase of flexibility in the management of index rules and decoupling from Listing segments which are currently are subject to legal requirements and require lengthy change processes.


1.2 Proposal: Replacement of turnover ranking in the Selection process with requirement of minimum liquidity coverage.

Description
: The criterion will be evaluated during the quarterly index review. For this the annual turnover rate will be calculated as 12-month turnover divided by the free-float market capitalization. For inclusion in the index family a company requires an annual turnover rate of at least 0.2 or an absolute annual turnover of EUR 1bn. In order to remain in the index family a company requires an annual turnover rate of at least 0.1 or an absolute annual turnover of EUR 0.8bn.


Aim
: Ensuring minimum liquidity for securities in the selection indices after elimination of the turnover criterion.

 
1.3 Proposal: Introduction of requirement of audited annual reporting with fast exit in case of non-compliance.

Description: Publication of audited annual report and mandatory interim financial information according to recommendation F.2 in the German Corporate Governance Code. Companies in breach of the above will be published and will be removed from the index within two business day notice if the respective report is not published within the next 30 days. A company will be also be removed from the indices if it or its auditor withdraw the respective audited financial statements after publication if the above timeline has been exceeded.

Aim: Increase in quality by demanding certified annual financial statements.
 
1.4 Proposal: Introduction of requirement of quarterly reporting with fast exit in case of non-compliance.

Description: Publication of mandatory interim financial information according to recommendation F.2 in the German Corporate Governance Code. Companies in breach of the above will be published and will be removed from the index within two business day notice if the respective report is not published within the next 30 days. A company will be also be removed from the indices if it or its auditor withdraw the respective audited financial statements after publication if the above timeline has been exceeded.

Aim: Retention of the standard of quarterly reporting from the Prime Standard.
 
1.5 Proposal: Introduction of requirement that Audit Committee in supervisory board exists and is staffed.

Description: Compliance with recommendations D.3, C.10 with respect to the audit committee, D.4, D.9, D.10 and D.11 in the German Corporate Governance Code as reported in the company’s annual Declaration of Compliance according to the German Corporate Governance Code. The measure would be effective at the time of its introduction for companies that are not part of the index at that time. For companies that are part of the index at that time, the measure would apply 12 months after its introduction in order to allow the companies to adapt.

Aim: Ensuring quality of corporate governance for index members.
 
1.6 Proposal: Introduction of exclusion of involvement with controversial weapons.

Description: No involvement with controversial weapons. The following weapons are considered controversial: anti-personnel mines, biological and chemical weapons, cluster weapons, depleted uranium, nuclear weapons and white phosphorus weapons. The criteria for involvement are:
  • Internal production or sale of controversial weapons
  • The ultimate holding company owns >10% of voting rights of an involved company.
  • >10% of voting rights of a company is owned by the involved company

Aim: Increasing the quality of the index components by excluding companies which, according to market consensus, do not pursue sustainable business models.
 
1.7 Proposal: Introduction of profitability requirement.

Description: With application to DAX only, at the time of the first index inclusion, requirement of positive EBITDA in both last two published annual reports at the time of the index inclusion. The measure would not affect companies already part of the index at the time the rule introduction.

Aim: Ensuring a high-quality threshold for DAX companies, while allowing more flexibility for companies in MDAX, SDAX, TecDAX recognizing that they might be in an earlier stage of their business cycle.
 

2. Selection and Weighting Criteria

2.1. Proposal: Abolishment of ranking by turnover.

Description: Selection of index constituents occurs solely by free-float market capitalization. The ranking by free-float market capitalization and the associated thresholds will remain unchanged.

Aim: Simplification of index rules and alignment to international standards.
 
2.2 Proposal: Addition of Regular review of DAX index in March.

Description: currently the DAX index undergoes a Review by application of Regular Exit and Entry rules only in September. Conversely, MDAX, SDAX and Tec DAX are reviewed by Regular Exit and Entry rules semi-annually in March and September.

Aim: The change aims to harmonize the review cycle of the indices and allow a more timely recognition of market changes in the DAX.


  Supporting Material (PDF)





If you have additional comments, please feel free to address them to [email protected].

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