Deutsche Brse presented its new index model for the equity market on Thursday. The new model is based on the plan, approved in principle by the Exchange Council of the Frankfurt Stock Exchange (FWB Frankfurter Wertpapierbrse), for two new segments that differ in terms of the applicable transparency standards. According to the current timetable, the Exchange Council will pass the amended Exchange Rules in mid-November, which would then go into effect as of January 1, 2003. The new indices would then come into effect on 24 March 2003.
The selection indices will only include companies that meet the higher transparency standards of the Prime Standard segment. The DAX index remains unchanged and will continue to contain the 30 largest German blue chips. Below the DAX, Deutsche Brse will differentiate according to classic sectors and technology sectors. For the companies from classic sectors, it will calculate the MDAX index, which is being reduced from 70 to 50 equities. The SDAX will continue to comprise 50 equities as the selection index for smaller firms ranked immediately below the MDAX. For the companies from technology sectors, there will be a new index, the TecDAX, which will track the 30 largest equities of the technology sectors. A parallel calculation of the Nemax 50, for the 50 largest equities in the technology sectors, is envisaged until the end of 2004, in order to maintain continuity in the financial products based on this index. All selection indices below the DAX will be open for the inclusion of foreign companies.
For the companies listed in Prime Standard, there will be a total of 18 sector indices as well as a Prime All-Share Index. The CDAX will cover all German equities in the two segments Prime Standard and General Standard ? formerly known as Domestic Standard in the original concept.
Christoph Lammersdorf, the Deutsche Brse Executive Board Member responsible for the Information Products Division, said: “This index model is specifically tailored to the needs of investors. We are supporting investment decision-making with a clear index logic that is based on company size and sector or industry.” With the introduction of the TecDAX Deutsche Brse will offer companies from technology sectors a new showcase. Volker Potthoff, the Deutsche Brse Executive Board member responsible for the cash market, said: “The new index world completes the new equity market segmentation with which we are creating the highest transparency standards in Europe and thus making investors the focus of market organization.”
As of early 2003, there will be two disclosure standards for equities listed at FWB. In General Standard, the requirements prescribed by German law will apply. In Prime Standard, additional, internationally accepted transparency criteria will apply: quarterly reporting, international accounting standards (IAS or US GAAP), a corporate calendar, at least one analyst conference per year as well as ad-hoc disclosure in English. After the Exchange Rules have been passed and the Exchange Supervisory Authority has given its approval, all of the parameters for the new equity market segmentation will be in place. Deutsche Brse will then provide issuers and market participants with comprehensive information and hold workshops to explain details of the reorganization. For admission to Prime Standard, issuers have to submit an application. Admission to General Standard, on the other hand, does not require any further action on the issuer’s part.
The Designated Sponsor model will also be revised within the framework of the new equity market segmentation. In the future, less liquid equities can only be traded continuously if a minimum of one Designated Sponsor – Deutsche Brse recommends two -provides for the necessary liquidity. Deutsche Brse will thus be expanding the model of additional liquidity provision to the entire equity market, regardless of listing segment. Continuous trading will be a prerequisite for the selection indices of Deutsche Brse.