DAX 40 coming soon. The German index will change after the Wirecard scandal

40 instead of 30 companies and stricter membership criteria - German DAX stock index will change from September 2021 following the Wirecard accounting scandal. The Deutsche Boerse exchange operator has such plans.

Changes are the result of the fall Wirecard, a German payment operator that climbed to the main index two years ago and recorded dramatic declines at the beginning of this year. Their cause was creative accounting, which had no coverage in the company's results. Ultimately, the collapse of the company embarrassed not only the stock exchange but also the German government. This damaged the country's reputation as a safe investment destination. Therefore, the index of the German DAX exchange, which is very popular among traders, is now facing changes that will adapt it to international standards.

"A wider DAX means more diversification and greater stability" - told Reuters Ingo Speich, director of sustainable development and corporate governance at the Deka fund.

The DAX was to be the second Dow Jones

The DAX index was established in 1988 as a German response to the Dow Jones Industrial Average in New York and the FTSE in London. From the very beginning, it was made up of 30 largest stock exchange companies, often referred to as the corporate elite in one of the largest economies in the world. The elite, however, did not do as well as the adjectives describing them would suggest. When we look closely at the fate of the companies that make it up, some of them went bust and others were withdrawn from the index. Among them, such big names and well-known companies as Commerzbank, ThyssenKrupp and Lufthansa. 

Wirecard was also supposed to be the train engine for the DAX, but it also disappeared after it filed for bankruptcy earlier this year. The audit did not leave a dry thread on the company's management, describing their actions as a sophisticated, global fraud.

Check it out: Brokers offering trading on DAX 30 [List]

New DAX, new rules

The DAX index will now be calculated according to the new rules. First of all, in order to get into it and become a part of the "new elite", you will have to exceed a predetermined break-even point. Each company will have to make profits and this is calculated over the previous two financial years. 

Companies from the DAX index will also be controlled. If they do not change their behavior after the 30-day warning and do not publish verified annual and quarterly reports, they will be excluded from the index. Wirecard never did ...

The number of companies included in the mid-cap index will also change. Instead of 60, there will be 50. 

What happened to Wirecard?

Wirecard was a German payment operator, operating like Visa and Mastercard. It developed from 1999 until the beginning of 2020, when a global scandal broke out.

“This is one of the biggest corporate scandals in German history. I think Wirecard is the German Enron " - Maximilian Weis, a lawyer at TILP Litigation, which filed a lawsuit against Wirecard in May, said in an interview with CNBC. 

The company filed for bankruptcy after the auditor announced that its balance sheet was missing 1,9 billion euros. There is even indirect evidence that the money was not lost, but… it never existed. What's worse - the company's financial practices have been criticized since 2015, incl. by the Financial Times. In 2017, German also wrote about it "Manager Magazin". The house of cards only started to fall apart  On January 30, 2019, the Financial Times wrote that one of Wirecard executives was suspected of financial fraud and money laundering. 

However, the German regulator still defended the company. The investigation started, but against… a journalist Financial Times! 

Wirecard, on the other hand, conducted an independent audit which concluded in April that it had not received sufficient documentation to investigate the allegations. On June 5, 2020, the police entered the company's headquarters and secured evidence that the aforementioned 1,9 billion euros is actually only a book entry.