G1 General Financial Markets
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In the aftermath of the Wirecard scandal the German lead stock market index DAX has undergone a series of reforms, including the introduction of a profitability criterion based on EBITDA for new DAX members and enhanced financial reporting requirements with specified sanctions for non-compliance. Furthermore, DAX members need to adhere to certain provisions in the German Corporate Governance Code relating to audit committees. The final step of the reform was implemented in September 2021: the extension of the DAX from 30 to 40 constituents, with the ranking based solely on the free float market capitalisation. After one year of experience with the new design of the DAX, this paper concludes that the reform has strengthened the DAX in terms of diversification, quality and adaptability. However, there is still room for further improvement by introducing a minimum ESG score for DAX companies and thus making sustainability a relevant factor in the selection process. In addition, full compliance with the recommendations of the German Corporate Governance Code should be a condition for DAX companies. Furthermore, the profitability criterion should be applied on a continuous basis to ensure that loss-making companies can be excluded from the DAX after a grace period.
The reuse of collateral can support the efficient allocation of safe assets in the financial system. Exploiting a novel dataset, we show that banks substantially increase their reuse of sovereign bonds in response to scarcity induced by Eurosystem asset purchases. While repo rates react little to purchase-induced scarcity when reuse is low, they become increasingly sensitive at high levels of reuse. An elevated reuse rate is also associated with more failures to deliver and a higher volatility of repo rates in the cross-section of bonds. Our results highlight the trade-off between shock absorption and shock amplification effects of collateral reuse.