Requirements for the New DAX Expand Member Companies

Azeez Mustapha
13 August 2021 | Updated: 13 August 2021

DAX index is Germany’s equivalent of London FTSE and the New York Dow Jones Industrial Average. Even though it measures the strength of the European and German economic health, it is one of the most popular and widely watched/followed stock market indexes worldwide. Furthermore, unlike many other leading indices, DAX factors its prices in reinvested dividend payments.

The companies that dominate DAX 40 are in the chemicals, financial, healthcare, automotive, and insurance sectors. Some of the most notable DAX 30 companies include BMW, Allianz, Siemens, and Bayer. The blue-chip index launched in 1988 comprises some of the largest 30 companies globally but expanding the number to 40 from September 2021.

The decision for the DAX expand from 30 to 40 is the most significant overhaul in its history. It comes in the wake of the Wirecard payments company scandal, which after only two years as a member of the DAX, filed for insolvency.
Trading With DAX
DAX index is a favorite trading strategy for many stocks, futures, and forex traders. It offers traders a high liquidity market, tight trading spreads, and longer trading hours. Forex traders using the DAX expand do not have to worry about any significant changes as they mainly affect the member companies.

Many of the best trading platforms, especially those covering global markets, assist forex and other traders in making the most informed trading DAX decisions. You can trade DAX 30 with any of the most common technical trading strategies such as Bollinger Bands, MACD, and Moving Averages. When you analyze entry, exit, and stop-loss points, using DAX 30 alongside support and resistant levels is also just as important.

A range of timeframes provided by the index also provides traders with more opportunities of making gains. Factors affecting the DAX price include market volatility, sociopolitical issues, Euro exchange rate, and trade and currency wars.

DAX Expand And What It Entails
The expansion to DAX 40 will diversify the index, but the criteria for membership of the new companies will undergo the following more rigid standards than it was in the past.

1. More regulated access rules
Following the Wirecard scandal involving a series of accounting frauds that led to its insolvency, the DAX index is making its access rules stricter than before. The first rule is that the last two financial reports of the companies seeking new membership should have positive earnings before interest, taxes, depreciation, and amortization (EBITDA).

2. Immediate exclusion for noncompliance and more demanding reporting obligations
The stringent rule set in March 2021 requires all DAX expansion members to publish their audited quarterly notifications and annual reports. The members get a 30-day warning period, after which they face immediate exclusion if they violate the requirements. Included in the new DAX index reporting rules are all the essential prime standard features.

This means that companies in the DAX index do not require a listing in the Frankfurt stock exchange-prime standard because their future on the regulated market is sufficient. The rule also facilitates faster and independent reaction by the index provider for any ember company flaunting the rules.

Requirements for the New DAX Expand Member Companies
3. Include a mandatory audit committee in the supervisory board
Another strict requirement for all the members of the DAX index is to have a required audit committee for proper governance. The recommendations set to start from March 2021 stipulate that an audit committee of the company should sit on the supervisory board as per recommendations of the German Corporate Governance Code.

The same also goes for the new companies with special structural features, such as those with partnerships limited by shares. The index will give all the existing companies a transitional period running up to September 2022 to set up the recommendations if they want to continue their stay with the DAX index community.

4. DAX indices scheduled for review twice a year
In the past, DAX carried a review on DAX indices only once a year, in September. However, as of 2021, with the entry of the new companies, the scheduled reviews will take place in March and September.

5. Selection of new member companies to depend solely on market capitalization
The DAX index used stock exchange turnover to rank the companies in the past or with the existing members. However, from September 2021, the market value or market capitalization will be the decisive factor in the rankings. The requirement will be for the member companies to have minimum liquidity, allowing the implementation of international standards to ensure the indices have sufficient liquidity.

6. No exclusion of Companies participating in controversial weapons
After several consultations, DAX dropped an earlier plan to ban companies involved in controversial weapons. Only a few respondents supported the proposal made it even easier for the index giant to accommodate the said companies.

Furthermore, passing the proposal would mean shutting out some of the most prominent member companies in the DAX index, such as Airbus, with its subsidiary for French nuclear weapon launchers. The proposal further agreed that addressing the rejection using sustainability criteria should be independent of the DAX index criteria.
Conclusion
DAX is the European Union blue-chip index and one of the most trusted and reliable places that people put their money expecting positive results. Besides attracting lots of industrial demand, traders also consider it their safety net and one of the main contributors to the growth of the German and European Union growth.

The insolvency of Wirecard, which was a significant contributor, did not see the index going down. Instead, the DAX expand from 30 to 40 demonstrates the consistency and flexibility of the German regulatory structures for the creation of friendly and modern environments for investing in the country.

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Azeez Mustapha

Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.