German exchange Deutsche Börse has moved to adjust the weightings of its DAX index constituents ahead of schedule, after an extraordinary share price hike of carmaker Volkswagen (VW) since the start of the week.
Following the announcement on Sunday, 26 September, that fellow carmaker Porsche had increased its stake in VW to 74.1%, it emerged that only 5.9% of VW stock would be available to the open market. The remaining 20% of VW is owned by the German state of Lower Saxony. On Monday and Tuesday, traders scrambled to close short positions in the automobile firm, causing a steep rise in the value of its shares.
Shares in VW jumped 147% on Monday and a further 82% on Tuesday, briefly making it the largest company in the world, with a market capitalisation of €287 billion.
This has led Deutsche Börse to bring forward to 3 November the imposition a 10% capping rule, ahead of its regular ‘chaining’ dates for reweighting the DAX. As such, the weighting of Volkswagen shares in the DAX will be reduced to 10%, if the weighting is above this threshold at the end of trading on Friday. The base for adjusting the DAX will be the Xetra closing price on 31 October.
At close of trading on Tuesday, VW was weighted with 27% of the total DAX index. The current cap limit for companies included in the DAX was reduced from 15% in September 2006. The next regular date for adjusting the index is 22 December.
Porsche also announced today that it would make 5% of its stake available to the market to increase liquidity in VW stock, by allowing investors to settle hedging transactions. Despite this move, Porsche accepts no responsibility for the huge increase in VW’s stock price.
“Porsche denies all responsibility for these market distortions and for the resulting risks to which the short sellers have exposed themselves,” read a statement on the Porsche website. “Porsche has not been active in the market during this share's price movements. Allegations of price manipulation by Porsche are therefore without any foundation whatsoever.”