Posted inDACH

Wirecard collapse sees Deutsche Boerse review exclusion rules

The scandal surrounding Wirecard’s missing billions has prompted the German stock exchange, Deutsche Boerse, to propose new expulsion rules for companies listed on the DAX.

“Currently, companies that file for insolvency proceedings remain in the DAX until the next quarterly review date; we are proposing that companies should be removed from the DAX selection indices [shortly] after the announcement of insolvency proceedings,” Deutsche Boerse told Expert Investor.

The suggested rule change would allow the exchange to eject companies from the DAX after two trading days, starting from the news about its insolvency.

Deutsche Boerse explained that the change was driven by the response to the Wirecard fallout.

“As a neutral index provider, our responsibility is to ensure that our indices reflect the economic reality of the index’s objective.

“In the past few weeks, we have received feedback that maintaining insolvent companies in the DAX was not in line with market expectations of a bluechip index,” the firm said.

Replacing stocks

If the proposal is adopted, it could mean that Wirecard may be expelled and replaced with another company in August.

“The Wirecard stock, as of 20.07.2020, has a weight of less than 0.1% in the DAX,” Deutsche Boerse said.

“If a company is deleted from the DAX index, it needs to be replaced by another company from the selection list that meets the criteria for inclusion. The next relevant selection list will be published on 3 August.”

The firm also explained that changes in DAX constituents happen regularly, at quarterly review dates, and that exchange-traded fund (ETF) issuers and fund managers are familiar with this process.

“Removing a company between review dates is less common, but also happens in cases of divestitures, privatisations and mergers,” it added.

Deutsche Boerse is seeking feedback from market participants about the rule change by 7 August and will announce the result of the consultation before 13 August.

Wirecard filed for insolvency last month after disclosing a €1.9bn hole in its accounts.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.