INDEXGOVERNANCE
FRAMEWORK
Terms of ReferenceFebruary 1, 2023

Nomura Fiduciary Research & Consulting Co., Ltd.
Index Services Department

Index Services Department (ISD)The Index Operations Dept. (IOD) was established in July 2015, to administer Nomura
Securities Co., Ltd. (NSC)’s indices based on the Principles for Financial Benchmarks
published by IOSCO (IOSCO Principles). On February 1, 2023, Nomura Fiduciary
Research & Consulting Co., Ltd. (NFRC) took over NSC's Index Business and IOD wasreorganized into Index Services Department (ISD).
Specifically, ISD:
-is responsible for all aspects of index development, determination, dissemination,operation, and governance;-determines the design of indices, including what data are to be used in the index
calculation;-

makes changes to the constituents and their weightings in accordance with thecalculation methodology relating to ongoing maintenance and periodic
reconstitutions, and publishes information and maintains records of index
weightings of all constituents;-

conducts reviews at least annually with regard to index methodologies and othermatters in order to assess whether a material change to the index methodology isrequired due to a structural change in the markets; whether the values measured
by NFRC’s indices have diminished or are not functioning due to a structuralchange in the market; or whether data in the index calculation are sufficient,appropriate and verifiable;-changes index methodologies, if necessary, through a consultation process;-disseminates the indices (including handling of enquiries and complaints, data
distribution, contracting, and marketing);-

exercises oversight of third parties responsible for collection of relevant elementsin the calculation and provision of the index;-identifies, records, manages, mitigates, prevents, or remedies current and potential
conflicts of interest and potential market abuse risks, and annually reviews theconflicts of interest register;-

responds to errors or disaster and recalculates or amends the index values asappropriate;-

implements index cessation;-establishes the policies and control framework for ensuring the integrity of thebenchmark and annually reviews them and their effectiveness; and2

-keeps all activity trails for five years that provide evidence that NFRC is incompliance with national legal or regulatory requirements and submits all relevant
documents if requested by the regulatory authorities.

Index Governance Structure in NFRC
NFRC's indices are designed in an objective manner based on clearly prescribed rules
and methodologies that are not allowed to be changed until passing predetermined
procedures so as to mitigate any arbitrariness and/or discretion in the index
determination process. NFRC compliance with methodologies, rules, manuals, policies,
and approval procedures in the index determination process is seen as vital.
NFRC has established an oversight and governance structure concerning the indicesmanaged by ISD with three internal and one external bodies with the aim of protecting
the integrity of the index determination process and addressing conflicts of interest.
Details of the governance structure are as shown in Figure 1.

Fig. 1: Governance framework for NFRC’s indices

The Strategic Solutions Committee
The Strategic Solutions Committee is one of the governance bodies in NFRC, and ischaired by the President & Representative Director and operates with a limited number3

of members due to the information management perspective. The Board of Executive
Directors appoints members and ensures members in Compliance Department areincluded.
The Strategic Solutions Committee discusses and takes a role to approve significant
matters such as:-establishing and updating policies published on NFRC's Website.

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developing new indices.

-changing methodologies and ceasing existing indices

Front Office Supervision (FOS)ISD conducts FOS, which is the first line of controls.
FOS are aimed at:-reviewing the major activities undertaken during the month and the key “riskindicators”, including the following: Results of risk assessments related to employees’ conduct and ISD’sactivities. Matters reported through FOS are reviewed by the ComplianceDepartment.
 Incidents related to index calculations and administration activities in termsof conflicts of interest, operational issues, and compliance issues.

-ensuring ISD’s adherence to supervisory procedures in its index administration,
while maintaining consistency of approach where appropriate;-cementing the supervisory framework through regular updates;-

ensuring that associated policies and ISD’s procedures are continually reviewed
and updated where necessary; and-assessing, overseeing, and challenging the effectiveness of the first line ofcontrols.

Index Steering Committee
The Index Steering Committee is a governance body established in ISD and is madeup of members appointed by the Head of ISD. The role is to verify applications
submitted by teams in ISD and confirm if the necessary information is available tomake a decision. Verification results are reported to the Head of ISD.

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Index Policy Committee (IPC)
The Index Policy Committee (IPC) acts as an advisory body for the Strategic Solutions
Committee, providing recommendations with regard to the appropriateness, integrity,transparency, reasonableness, and potential limitations of NFRC’s index
administration.
ISD stipulates the following in its internal rules: a) the Strategic Solutions Committee
shall appoint the IPC members; b) members should be external experts andpractitioners who are involved in the financial index business or asset managementindustry; c) members should not have any material conflicts of interest; and d) NDAs
shall be signed between NFRC and each IPC member; and e) membership shall be
reviewed on an annual basis.
IPC meetings are held on an annual basis, although the Strategic Solutions Committee
can convene an IPC meeting at any time if it is deemed necessary.
NFRC does not disclose the names of IPC members or its candidates in order tomaintain the independence of the IPC and prevent lobbying by market participants,
unless regulatory authorities or auditors require such disclosure.

Key Control Framework
NFRC sets forth the following policies to establish and manage NFRC’s index
determination, calculation, and publication procedures. ISD reviews and updates thecontrol framework at least annually. ISD consults with the Compliance Department its
effectiveness.
http://qr.nomuraholdings.com/en/guides/index.html
 Index Governance Framework (Terms of Reference) Conflicts of Interest Policy
 Index Calculation Policy Complaints Handling Policy

Oversight of Third Parties
NFRC outsources activities relating to the collection of relevant elements in index
calculation and the provision of NFRC’s indices, and discloses the identity and roles ofthird parties in index rule books or the “Index Calculation Policy”. NFRC is responsible
for the appropriate oversight of the third parties. NFRC sets forth the following policies

5and procedures to oversee third parties undertaking these activities. Specifically,NFRC: defines the roles and obligations, operational policies, and contingency
plans in a written agreement, a service level agreement, or a service levelprovision.
 oversees third parties’ service quality by establishing a framework toperform a daily verification check over the index calculation prior to thepublication of indices, or evaluating Information Technology General
Control and Information Technology Application Control implemented by
the third party annually, along with holding periodic meetings or receiving
reports on the outsourced activities periodically from third parties.

Ensuring Data Sufficiency
NFRC stipulates in its internal rules that ISD must regularly evaluate data to ensure
they are sufficient to represent the interest measured by NFRC’s indices reliably andaccurately. Evaluation standards set by ISD include the following.
-Sufficient coverage in terms of prices.

-A reasonable deviation range between prices obtained from a different source thanthe original source and prices used to calculate indices.

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Revision historyRevision date

Details

March 27, 2019

First edition

September 30, 2019

Partial revision of “Index Governance Board (IGB)”

March 26, 2021

Revisions to overall text

March 17, 2022

Partial revision of “Index Governance Board (IGB)” and“Front Office Supervision (FOS) meetings”

February 1, 2023

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Revisions to overall text due to the business succession.