By Paul J. Davies

Germany's leading stock index expanded its size and changed rules to boost the quality of its constituent companies, a move sparked in part by the collapse of payment company Wirecard AG because of a multibillion-dollar fraud.

Deutsche Börse AG, which owns the DAX-30 index, said Tuesday all potential members would have to achieve a measure of positive operating profit -- known as earnings before interest, tax, depreciation and amortization -- for two full years before joining. The index, which represents around $1.2 trillion in market value, will also be expanded from 30 to 40 members.

In August, Deutsche Börse made it easier to kick constituents out of the index. Wirecard, which went into the German equivalent of bankruptcy in June, languished in the index for more than a month before its expulsion. The formerly highflying payments group was the first member of the prestigious index to collapse into insolvency.

German prosecutors are investigating the company and several of its former top executives on suspicion of an organized and complex fraud.

One rule change announced Tuesday that might have made a difference to Wirecard is that DAX companies must have an audit committee and it must adhere to German Corporate Governance Code recommendations about how it works. The code says that an audit committee must be headed by an independent director who isn't also the chairman of the supervisory board.

Wirecard didn't have any board committees when it joined the DAX 30 in September 2018, about the time that its market value peaked at almost 24 billion euros (equivalent to $28 billion) . It long chose not to set up committees because it had a small supervisory board of just five members. Wirecard only set up an audit committee in 2019 after Thomas Eichelmann, who later became chairman, joined the board.

The new DAX rules say that an audit committee will be a requirement for new members from March next year, while existing members will have to meet the standard by September 2021.

The rule requiring that companies achieve an operating profit brings the DAX more in line with other index providers. In the U.S., the S&P 500's rule that potential members must post four consecutive quarters of accumulated profits is one of the things that long kept electric car maker Tesla out of the index. Tesla is set to join the index in December.

"Market participants will benefit from a simple set of rules in line with international standards and new qualification criteria for the German benchmark index," said Stephan Flägel, Global Head of Benchmarks & Indices at Qontigo, the unit of Deutsche Börse that runs indexes and financial data.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

11-24-20 0745ET