Ground Rules

May 2024

FTSE Russell
Policy for Benchmark
Methodology Changes
v2.4

lseg.com/en/ftse-russell

FTSE Russell Policy for Benchmark Methodology Changes, v2.4, May 2024

Contents

Section 1 Overview ............................................................................................................................................................. 3
Section 2 Standard indices ................................................................................................................................................. 4
Section 3 Custom indices ................................................................................................................................................... 7
Section 4 Bespoke indices .................................................................................................................................................. 8
Appendix A External Advisory Committees ........................................................................................................................ 9
Further information ............................................................................................................................................................ 10

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Section 1Overview

1.

Overview

1.1

Policy for benchmark methodology changes

1.1.1

FTSE International Limited is the benchmark administrator for benchmarks that are operated under theFTSE Russell1 brand.

1.1.2This document outlines the procedure which is followed when FTSE International Limited considers making
changes to an index methodology for one of its index families.

1

FTSE Russell is a trading name of FTSE International Limited, Frank Russell Company, FTSE Global Debt Capital Markets Limited (and its subsidiaries FTSE Global Debt CapitalMarkets Inc. and FTSE Fixed Income Europe Limited), FTSE Fixed Income LLC, The Yield Book Inc and Beyond Ratings.

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Section 2

Standard indices2.

Standard indices2.1

Regular review

2.1.1

FTSE Russell index methodologies are subject to regular review to ensure that they continue to meet thecurrent and future requirements of investors and other index users and lead global standards in indexing.
Changes to an index methodology may originate as a result of recommendations from internal governancebodies, feedback from external advisory committees and clients or in response to changes in the underlying
market structure or relevant legislation.

2.2

Consultation policy

2.2.1

FTSE Russell seeks the views of its external advisory committees and, in certain instances, the broader
market as part of public consultations for proposed updates to FTSE Russell standard indices, for example
the FTSE Global Equity Index Series, the FTSE UK Index Series, the Russell US Index Series, the FTSE
World Government Bond Index Series and the FTSE Canada Bond Index Series. A full list of external
advisory committees and links to their terms of reference is provided in the Appendix 1.

2.2.2

For these indices, as a general principle, advisory committees are consulted on changes to the rules that
dictate how we manage the index. In the case of fundamental modifications, for example, those with thepotential to change the composition of indices, FTSE Russell may launch a public market consultation tosolicit feedback from all relevant index stakeholders. In such instances, all comments received areconsidered by FTSE Russell to understand the impact of a proposed change on the wider investment
management ecosystem.

2.2.3

Advisory committee feedback may also extend to the timetable for the application of updated methodologies
and eligibility criteria. On occasion, the FTSE Russell Index Governance Board may decide to provide
existing constituents with a temporary grandfathering period (up to a maximum of five years) in order tomeet eligibility criteria in accordance with the updated rules (subject to passing all other eligibility criteria).

2.2.4

For standard indices with few users (which may not be supported by external advisory committees), FTSE
Russell reserves the right to consult those users for feedback on potential changes to index methodology.
These discussions should not be viewed as confirmation that will ultimately result in a rule change. The final
approval of an index methodology change is made by the FTSE Russell Index Governance Board.

2.2.5

The following table summarises the type of topics for which a consultation is generally undertaken, theseare defined as material changes:
Consultation with External Advisory Committees

Broad Stakeholder Consultation

Consult on changes to the Ground Rules that dictate how wemanage the index, for example:

Changes to rules that might significantly affect index
composition including:–corporate action treatment,–eligibility criteria,–

free float definitions,–construction rules,–

investability weight adjustments for stocks nearing theirforeign ownership limits.

–reconstitution frequency,–

reflection of market structure changes.

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Current and previous consultations are available on the FTSE Russell website using the following link:
Market Consultations
2.2.6

Partner indexes
Several FTSE Russell indices are produced in partnership with other bodies and are branded accordingly.
Examples include index series administered by FTSE International Limited in partnership with a national
stock exchange, and series produced in partnership with firms that provide proprietary weighting schemes.
Stock exchange partnership indices usually have an associated external advisory committee that isconstituted with users of those indices. Both the partner and the committees are consulted on potentialchanges to the construction of the partnership indices.

2.2.7

Screened indices
The standard FTSE Russell indices are used as the basis for other index series where membership is
additionally determined by the application of an eligibility screen. Examples include the FTSE4Good IndexSeries (which applies ESG screens to potential constituents) and the FTSE EPRA Nareit Index Series(which screens potential constituents for the percentage of EBITDA that arises from eligible real estate
activities).
Many screened indices have associated external advisory committees (see Appendix 1) that provide advice
and guidance to FTSE Russell on the indices referenced in the relevant Terms of Reference. As such
indices are derived from an underlying index, methodology changes applied to the underlying index
generally will flow through to the screened index. For this reason, the external advisory committees areprimarily consulted on potential changes to the eligibility screens. There may however be circumstanceswhere the external advisory committees will be consulted on methodology changes that are specific to thescreened indices and not contingent on any changes to the underlying index.

2.2.8

Alternatively weighted indices
The standard FTSE Russell indices are also used as the basis for other index series that are derived fromthe standard indices by the application of alternative weighting schemes. Examples include the FTSE andRussell RAFI indices, indices where the constituents are weighted in proportion to some risk measure, andindices weighted according to their exposure to some factor characteristic.
As alternatively weighted indices are derived from a standard index, and methodology changes to thestandard index will usually flow through to the alternatively weighted index, separate external advisorycommittees for these indices are generally not constituted. In cases where there is a proposal to change theconstruction of an alternatively weighted index, for example a change to the underlying universe of the index
or to the frequency of its reconstitution, a targeted consultation will be undertaken with known users of theindices. If the indices are produced in partnership, the partner will be consulted ahead of the user
consultation.

2.3

Public consultation process

2.3.1

The FTSE Russell Index Governance Board will review the merits of undertaking a public consultation
based on the guidelines in the previous section. If the FTSE Russell Index Governance Board determines toproceed with a public consultation, it will approve the contents of the consultation and the set of users andother stakeholders to which it should be distributed. The consultation will be announced and distributed tothose whose input is sought. It will also be made available through appropriate media and be published via
the FTSE Russell website. Consultations will typically be open for feedback for a period of no less than fourweeks. However, FTSE Russell reserves the right to determine the most appropriate consultation period(including a shorter window for feedback) taking into consideration such factors as the complexity of thesubject matter and the desirable timetable for implementing any proposed methodology changes.

2.3.2

Once the consultation period has closed, the results of a consultation may be presented to the externaladvisory committee (if any) that provides an external perspective of the index series. The feedback from theconsultation and, where applicable, from the committees is analysed. Recommendations arising from theanalysis are presented to subsequent meetings of the external advisory committees where applicable, andto the FTSE Russell Index Governance Board.

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The final approval of an index methodology change is made by the FTSE Russell Index Governance Board.
Following FTSE Russell Governance Board approval of a methodology change, index users and otherstakeholders are notified through the publication of a notice. Index users will be given at least one month’s
notice of any material change (this may vary for custom indices). Such notices can be found on the FTSE
Russell website at Index Announcements.
2.4

Ongoing methodology oversight

2.4.1

Any feedback following the implementation of a methodology change is considered by the FTSE Russell
Index Governance Board and external advisory committees as part of the on-going consideration of themanagement and development of index methodologies

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Section 3

Custom indices3.

Custom indices

3.1.1

Custom indices are defined as those that are derived from a standard index through customisation
including, but not limited to:– Additional inclusion or exclusion rules for a list of constituents, either named individually or selected byvirtue of their membership of a particular sub-categorisation, such as by industry classification, maturity
or credit rating;– The application of a custom set of withholding tax rates to calculate a net-of-tax total return index;– The application of a custom capping methodology;– The application of a custom hedging methodology;– Application of a specific weight to sectors or other index sub-components within an overall index;– Calculation using prices or FX rates other than the official end-of-day closing prices or WMR FX
benchmark rates (for example, indices calculated using mid-day snapshots of real time equity prices
and/or FX rates)

3.1.2

For such indices, methodology changes made to the underlying index will generally flow through to thecustom index.

3.1.3

For custom indices with few users, FTSE Russell reserves the right to consult those users for feedback on
potential changes to index methodology. These discussions should not be viewed as confirmation that will
ultimately result in a rule change. The final approval of an index methodology change is made by the FTSE
Russell Index Governance Board.

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Bespoke indices4.

Bespoke indices

4.1.1

Bespoke indices are defined as those indices which are constructed according to a methodology that differsfrom that applied to any standard FTSE Russell index. There may not be a standard index underlying theconstruction of the bespoke index, and changes to the methodology of standard indices do not necessarily
flow through to the bespoke index.

4.1.2

Depending on the agreement with the client, bespoke indices may be administered by FTSE International
Limited or by the client. Where the index is administered by the client, FTSE International Limited acts as
the calculation agent. The rest of this section applies only to those indices where FTSE International has
been appointed as administrator.

4.2

Proposals for methodology changes

4.2.1

Proposals for amendments to the methodology of a particular bespoke index administered by FTSE
International Limited, such as changes to the index eligibility criteria, rebalance frequency and construction
rules, are presented to the FTSE Russell Index Governance Board for consideration. Should the proposedchange be approved by the FTSE Russell Index Governance Board licensees of the indices are informed
via a client notice.

4.2.2

Proposals for amendments to the methodology of a bespoke index may be initiated by either the client or
FTSE International Limited.

4.3

Ongoing methodology oversight

4.3.1

Any feedback following the implementation of a methodology change to a bespoke index is considered by
the FTSE Russell Index Governance Board as part of the on-going consideration of the management anddevelopment of index methodologies.

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Appendix A

External Advisory Committees

1.

External Advisory Committees
Terms of Reference for the following external advisory committees can be found using the following link:terms-of-reference
External Committees
FTSE Russell Policy Advisory Board
EquityFTSE Russell Americas Regional Equity Advisory Committee
FTSE Russell Asia Pacific Regional Equity Advisory Committee
FTSE Russell EMEA Regional Equity Advisory Committee
FTSE Gold Mines Index Series Advisory Committee
FTSE Italia Index Series Advisory Committee
FTSE Italia Index Series Technical CommitteeFixed Income
FTSE Asia Pacific Regional Fixed Income Advisory Committee
FTSE Canada Regional Fixed Income Advisory Committee
FTSE EMEA Regional Fixed Income Advisory Committee
FTSE US Regional Fixed Income Advisory Committee
Sustainable Investment
FTSE Russell Sustainable Investment Advisory Committee
FTSE Russell Sustainable Investment Technical Advisory Committee
Country Classification
FTSE Equity Country Classification Advisory Committee
Partnerships
FTSE Bursa Malaysia Index Advisory Committee
FTSE EPRA Nareit Regional Advisory Committees
FTSE JSE Index Series Advisory Committee
FTSE Nareit Index Series Advisory Committee
STI and FTSE ST Index Advisory Committee
Digital Assets
FTSE Russell Digital Assets Advisory Committee

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Further information

For further information on FTSE Russell Indices please visit www.lseg.com/en/ftse-russell/ or e-mailinfo@ftserussell.com.

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Disclaimer© 2024 London Stock Exchange Group plc and its applicable group undertakings (“LSEG”). LSEG includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company(“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) FTSE Fixed Income Europe Limited (“FTSE FIEurope”), (5) FTSE Fixed Income LLC (“FTSE FI”), (6) FTSE (Beijing) Consulting Limited (“WOFE”), (7) Refinitiv Benchmark Services (UK) Limited (“RBSL”), (8) Refinitiv Limited (“RL”)
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