20 Sep 2021

Eurex Exchange

The DAX® reform and its impact on derivatives trading

The increase in the DAX to 40 constituents marks a significant evolution for the leading German index. But what will the impact be on derivatives trading? We spoke to Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex.


Zubin, can you shortly summarize the September 2021 changes to the DAX index methodology?

On 20 September, the leading German index DAX was increased to 40 stocks, which represents the most comprehensive index reform in the history of the DAX, creating a leading index that represents a wider spectrum of the German capital market with qualitative improvements and adjustments to international standards. With the 10 new constituents coming from the MDAX – Airbus SE, Zalando SE, Siemens Healthineers AG, Symrise AG, HelloFresh SE, Sartorius AG Vz, Porsche Automobil Holding, Brenntag SE, Puma SE and Qiagen N.V. – the index weighting of individual stocks in the index changes: the price level now needs to be distributed over 40 stocks. And, with new and additional constituents, the weight of different sectors, for example retail, in the DAX will also change.

Why change from 30 to 40 constituents? What is the idea behind that?

The number of index constituents is, of course, only one of several parameters. But growing to 40 constituents will lead to a broader benchmark and more sector diversification. With 40 constituents in the DAX, the index will be more liquid and investable and a more comprehensive representation of the German stock market.

What is important to know for clients, in terms of the rule changes, and how would you value the impact?

What is new is that DAX candidates have had to prove their profitability, among other things, since December last year. The timely publication of audited annual, semi-annual and quarterly reports has also been prescribed. This gives Qontigo, as an index provider, the opportunity to take early action in case of deficiencies in financial reporting.

Very importantly, the only benchmark for ranking is now market capitalisation. Stock exchange turnover has thus been dropped as a criterion and replaced by a minimum level of liquidity. The rules and regulations will be much simpler and easier to understand for all investors. This significantly increases transparency and predictability in line with the standard of other blue-chip indexes. But, first and foremost, of course, the DAX should remain the reliable barometer for the German economy and be investable as an underlying for financial products.

What are the new opportunities for trading DAX family index derivatives after the change? 

Our DAX derivatives family consists of DAX Futures, Options and ESG versions thereof. The futures offering includes the regular futures, as well as the Mini and Micro Dax Futures with a contract value five and 25 times smaller than the regular contract, respectively. These products are among the most liquid products worldwide. The futures offer international investors seeking exposure to the German market the opportunity to hedge against the leading German index, making them the perfect instrument for tactical asset allocation and offering interesting trading opportunities, for example around the upcoming federal elections in Germany.

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