Deutsche Börse Faces Transformation Amid Stock Market Surge

The Deutsche Börse has reported exceptional performance as it enters 2025, following a year where the DAX index reached unprecedented heights. The operator of the Frankfurt Stock Exchange announced on Wednesday that its earnings before interest, taxes, depreciation, and amortization (EBITDA) surged by 15% in 2024, totaling approximately EUR3.4 billion. This record-setting profit has resulted in anticipation of a significant dividend payout for shareholders.

Despite this success, Germany's leading stock exchange operator is on the brink of a major transition. According to financial news service Wallstreet Online, the executive board is contemplating the introduction of a second DAX index. The DAX, which reflects the stock performance of the most significant publicly traded companies in Germany, serves as a benchmark for various investors, including banks, insurance companies, and individual investors.

However, the current structure of the DAX may not adequately represent large corporations such as SAP. At the time of reporting, SAP's market capitalization exceeded EUR340 billion, constituting more than 20% of the total market value of all DAX-listed companies. The existing rule limits any single company's weight in the index to 15%. Should a company's market value exceed this threshold, the excess is removed from the DAX, necessitating the sale of shares by investment funds that track the index.

Christian Klein, SAP's CEO, has indicated that this limitation could adversely affect the company's stock price. In the past, Linde, a former heavyweight in the DAX, opted to withdraw from the German stock market to focus on its US listing in New York for similar reasons. To prevent further stock sell-offs, the Deutsche Börse's CEO, Stephan Leithner, aims to introduce a second DAX index that would allow for the representation of larger companies without the weight cap. Experts believe this move could significantly transform the German stock market, benefiting major players like SAP while introducing potential risks for smaller firms.

The DAX index achieved a new record high recently, representing about 80% of the total market capitalization of publicly listed companies in Germany and approximately 90% of stock trading volumes in German equities. The Deutsche Börse AG profits from every transaction, irrespective of market performance, earning revenue from the buying and selling of stocks. Generally, the exchange thrives during periods of market volatility, as trading activity from banks, investment funds, and individual investors tends to increase.

While the Deutsche Börse is listed itself on the DAX, it is considered less influential in global stock trading. However, Leithner emphasizes that the company functions as a comprehensive infrastructure provider that connects the supply and demand for capital, encompassing various financial instruments such as derivatives, other securities, commodities, currencies, and cryptocurrencies. The company positions itself as a technology leader in the digital realm, employing a significant portion of its workforce in information technology roles.

Looking forward, the Deutsche Börse is focused on mobilizing private capital for Europe, advocating for the relaxation of European Union regulations. Currently, over EUR33 trillion in savings across the EU are primarily held in cash and deposits, representing an enormous untapped resource. Leithner argues for the establishment of a dedicated liquidity pool to enhance Europe's financial independence from American capital.