Deutsche Börse is raising the so-called cap limit in the DAX. What sounds technical is of great importance for the companies listed in the leading German index.
It was a shock for the Frankfurt financial center: At the end of February, the DAX heavyweight Linde turned its back on the Deutsche Börse and transferred all shares from the DAX to the New York Stock Exchange.
Since then, Linde shares have been listed in the S&P 500 and are therefore part of the 500 most valuable stock exchange companies in the USA. Linde shares can only be traded on the New York Stock Exchange. The DAX has thus lost its most valuable company.
Weighting will be 15 percent in the future
Deutsche Börse has now learned its lesson from this and wants to increase the so-called cap limit. In the spring it is to be increased from the current ten to 15 percent.
The capping limit defines how high the maximum weighting of an individual company in the index can be. If the weighting increases above this value, it is adjusted accordingly every three months for index review.
This means: As soon as a company’s share price develops better than the DAX, index funds that track the leading German index have to repeatedly sell shares in this company.
Linde shares are soaring
At Linde, this rule had regularly depressed the share price in the past. That was also the reason why the US management decided to take the traditional company off the German stock exchange.
Linde merged with US competitor Praxair in 2018. Linde’s share price has risen by 25 percent since the beginning of the year.
Bianca von der Au, HR, tagesschau, November 23rd, 2023 8:59 a.m