Germany’s DAX-30 Stock Index Tightens Rules After Wirecard Fraud Fiasco

The implosion of major payments player Wirecard AG amid a multibillion-dollar fraud scandal has spurred an overhaul of Germany’s top stock index.

Owner of the DAX-30 index, Deutsche Börse AG announced on Tuesday (Nov. 24) that all prospective members will have to pass a basic profitability standard first, The Wall Street Journal reports.

In particular, potential members of Germany’s blue-chip stock index will have to demonstrate positive earning profit for two full years before joining. Positive earning profit is also known as EBITDA, earnings before interest, tax, depreciation and amortization.

The index also plans to expand its membership – whose collective market value now stands at $1.2 trillion – by roughly a third, from 30 to 40 members, the Journal reports.

The new rules follow an earlier overhaul in August by Deutsche Börse that gave it more power to speedily expel companies that violate its standards, which it then exercised by removing Wirecard from the index. In particular, the rule change allowed the index to remove companies that have become insolvent.

However, the Wirecard scandal also raised concerns about the Deutsche Börse’s ability to police its members.

The Wirecard scandal blew wide open in June when the payments company filed for insolvency after acknowledging that $2.1 billion it had said was missing from accounts in the Philippines never existed at all. But Deutsche Börse was not able to do anything at the time, with the index only able to finally give Wirecard its walking papers in August after changing its rules.

Deutsche Börse also made another major rule change on Tuesday, with all members of the DAX index now required to have audit committees, the WSJ reports.

The audit committees must also follow certain standards laid out by the German Corporate Governance Code, which require the audit panel to be an independent director who is not the chairman of the supervisory committee, according to the Journal.

Wirecard had no committees when it joined the DAX 30 in September 2018, with just a five-member board to oversee a company that was valued at $28 billion at the time, according to the WSJ.