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DAX – benchmark and barometer for the German economy

DAX – benchmark and barometer for the German economy

The DAX® index, the best known German stock exchange barometer, measures the performance of the 30 largest and most liquid companies on the German stock market. It represents around 80 percent of the market capitalisation of listed stock corporations in Germany.

The DAX index family

As one of Deutsche Börse's best known brands, the DAX index is both a barometer for the German economy and a benchmark for a large number of financial products. As a selection index, it tracks the largest and most liquid companies listed on the Frankfurt Stock Exchange. 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 that follow DAX, the SDAX® index, with the 50 next biggest and most actively traded companies after the MDAX index, and TecDAX®, with a focus on technology companies.

The composition of the indices is reviewed quarterly. There is a clear and transparent set of rules regarding admission and removal of companies to or from the indices (see Guide Equity Indices). As of September 2016, the process for selecting companies in all indices is purely quantitative as well as completely automated, and aligned with the existing DAX index rules. These rules ensure that the indices maintain a high degree of tradability, replicability and continuity. The automated process leads to a further improvement in the transparency of the index rules and visibility of changes and enables an objective and fact-based process for determining the composition of the equity indices.

Decisions concerning the framework for equity indices are taken by Deutsche Börse AG in consultation with the Working Committee for Equity Indices (Arbeitskreis Aktienindizes), whose members include representatives of leading national and international financial institutions.

Selection criteria

Companies qualify for admission to the DAX index based on the following two main criteria:

  • Order book turnover on Xetra and the Frankfurt trading floor (in the preceding twelve months)
  • Free float market capitalisation on a specific date (last trading day of a month) - this figure is calculated using the volume-weighted average price (VWAP) of the last 20 trading days

Deutsche Börse publishes the data on these two criteria in its monthly “equity index rankings”, which serve as a basis for decision-making in index reviews. For a company to be included in a ranking list:

  • shares must be listed in the Prime Standard segment
  • shares must have a minimum free float of ten percent
  • it must have its legal headquarters or operating headquarters in Germany
  • continuously trade on Xetra
  • must have a minimum period since first listing: at least 30 trading days
  • foreign companies may be admitted to the DAX if they have their legal headquarters in the European Union or in an EFTA state and a focus of trading volume on XETRA

The rules

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 basis 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.

Resulting adjustments to the indices are announced quarterly in March, June, September and December; however, the indices with their new composition are not calculated until the rebalancing dates around two weeks after announcement of adjustments. More precisely, the indices are rebalanced on the Monday following the third Friday in March, June, September and December, as the DAX futures expire on those particular Fridays. This ensures that new index composition is also reflected in the DAX futures, enabling market participants to prepare for impending changes and adjust their portfolios as necessary. The new composition not only involves adding new companies to the index but also updating relevant key figures in the indices on a quarterly basis and limiting the weighting to a maximum of ten percent to prevent heavyweights from dominating.

If a company becomes insolvent, is taken over by another company or its free float drops to below ten percent, an extraordinary replacement may also be undertaken before the set dates.

 

Upcoming DAX indices composition review dates:

  • 5 December 2017
  • 5 March 2018
  • 5 June 2018
The DAX index is calculated every second on the basis of Xetra prices, from 9.06 a.m. (latest) until 5.30 p.m.

All selection indices are calculated as price indices (tracking pure price performance), performance indices (fully reinvesting all dividends) and net return indices (reinvesting the net dividend). DAX is usually considered a performance index.

Additional Information

Contact

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