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Deutsche Börse is changing the rules for the composition of the MDAX, SDAX and TecDAX indices. As of September 2016, the process for selecting companies in the indices will be purely quantitative as well as completely automated, and aligned with the existing DAX index rules. The Working Committee for Equity Indices, which advises Deutsche Börse regarding the selection indices, will continue to provide recom-mendations in respect of rule changes, but will not give any further guidance on the specific composition of the indices going forward.
Companies primarily qualify for admission to Deutsche Börse's equity indices on the basis of two main criteria: free float market capitalisation and exchange turnover on Xetra and the Frankfurt Stock Exchange. All indices are subject to a quarterly review based on the “Fast Entry” and “Fast Exit” rules to update the indices for significant changes in the market. Whereas the DAX is additionally subject to a regular annual review in September with lower inclusion and exclusion, there is an additional regular review of the MDAX, SDAX and TecDAX in March.
The process for determining a change in the composition of the index was already completely rule-based – although there had been room for discretion in some special situations. In future, index composition changes will be fully automated in all cases. This will lead to a further improvement in the transparency of the index rules and visibility of changes.
“The adjustment to the rules is an important step in making the composition of all Deutsche Börse selection indices fully transparent, objective and fact-based. Due to increasing regulation and given the positive experience with respect to the purely quantitative rules for the DAX index, applying the rules also to the subsequent indices ranking is a consistent further development,” said Holger Wohlenberg, Managing Director Market Data + Services, responsible for Deutsche Börse´s index business.
Moreover, the new index composition will continue to be announced after 10 p.m. on the third trading day in March, June, September and December. The meetings of the Working Committee for Equity Indices will be held two days after the publication of the changes in the indices.
The next regular rule-based review of the composition of the Deutsche Börse equity indices is scheduled for 5 September 2016. The next meeting of the Working Committee for Equity Indices will be held on 7 September 2016.
The DAX index family
The DAX Index measures the performance of the 30 largest and most liquid companies on the German stock market. In addition to the DAX itself, the DAX index family comprises further indices such as the MDAX, which tracks the 50 largest and most liquid companies in the traditional sectors that follow the DAX, the TecDAX, with a focus on the 30 biggest technology companies after the DAX and the SDAX, with the 50 next biggest and most actively traded companies in the traditional sectors after the MDAX.
The DAX is subject to a regular annual review in September; there is an additional regular review of the MDAX, SDAX and the TecDAX in March and September. All indices are also subject to a quarterly review based on the “Fast Entry” and “Fast Exit” rules, with higher inclusion and exclusion hurdles than for the regular reviews. These index adjustments are intended to take into account significant changes on the ranking list. These may arise, for example due to companies that no longer have the necessary size (free float market capitalization) or liquidity (order book volume), for example due to large changes in the free float or large drops in price.
Overview of rules for index composition
Fast-Exit: A company is excluded from the index if it has a rank worse than 45 in DAX, 65 in MDAX, 115 in SDAX, and 45 in TecDAX for either criteria of free float market capitalisation or order book volume. It is replaced by the company with a rank equal or better than 35 in DAX, 55 in MDAX, 105 in SDAX, and 35 in TecDAX for both criteria.
Fast-Entry: A company is included in the index if it has a rank equal or better than 25 in DAX, 45 in MDAX, 95 in SDAX and 25 in TecDAX for both criteria. The company that is removed from the index will have a rank worse than 35 in DAX, 55 in MDAX, 105 in SDAX and 35 in TecDAX for either criteria.
Regular-Exit: A company can be excluded from the index if it has a rank worse than 40 in DAX, 60 in MDAX, 110 in SDAX, and 40 in TecDAX for either criteria, provided that there is a company that has a rank equal or better than 35 in DAX, 55 in MDAX, 105 in SDAX and 35 TecDAX for both criteria. If no alternate candidate can be determined, there is no change.
Regular-Entry: A company can be included in the index if it has a rank equal or better than 30 in DAX, 50 in MDAX, 100 in SDAX and 30 in TecDAX for both criteria, provided that there is a company that has a rank worse than 35 in DAX, 55 in MDAX, 105 in SDAX and 35 in TecDAX for either criteria. If no alternate candidate can be determined, there is no change.
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