Ground Rules

August 2024

FTSE Russell
Governance Framework
v3.0

lseg.com/en/ftse-russell

FTSE Russell Governance Framework, v3.0, August 2024

Contents

Section 1 FTSE Russell governance framework ................................................................................................................ 3
Section 2 First line of defence ............................................................................................................................................ 4
Section 3 Second line of defence ....................................................................................................................................... 6
Section 4 Third line of defence ........................................................................................................................................... 7
Appendix Terms of reference ............................................................................................................................................. 8
Further information .............................................................................................................................................................. 9

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Section 1

FTSE Russell governance framework

1.

FTSE Russell governance framework

To oversee its indices, FTSE Russell employs a governance framework that encompasses product, service andtechnology governance. The framework incorporates the London Stock Exchange Group’s three lines of defence risk
management framework and is designed to meet the requirements of the IOSCO Principles for Financial Benchmarks 1,the European Benchmark Regulation2 and the UK Benchmark Regulation3. The bodies involved in the framework areshown in figure 1 and their respective roles are summarised below.
Figure 1: FTSE Russell governance framework

123IOSCO Principles for Financial Benchmarks Final Report, FR07/13 July 2013.
Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or tomeasure the performance of investment funds.
The Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019.

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Section 2

First line of defence

2.

First line of defence
The first line bodies are operated by FTSE Russell executive management. They act within the risk appetite
set by the second line Oversight Committee to ensure that new Indices and other FTSE Russell products
can be operated and maintained to satisfactory standards, and that changes and enhancements to existing
Indices are made with the support of index users and other stakeholders. Further details of their roles areprovided below.

2.1

Index Governance Board (IGB)
The methodologies for all new FTSE Russell Indices are approved by the FTSE Russell Index Governance
Board to ensure that they meet appropriate technical standards before the Indices are launched or released toclients. The Index Governance Board will also approve changes to the methodologies of existing Indiceswhere these have been proposed by the Index Policy team as a result of suggestions made by members of
the external advisory committees, by FTSE Russell staff or arise from the results of market consultations. TheIndex Governance Board is also responsible for approving benchmark policies and authorising consultations.
To assist with its work, the FTSE Russell Index Governance Board requests assessments and approvals
from specialist internal bodies to ensure that a proposed new index methodology will adequately meet theperceived demand, is suitable for the FTSE Russell brand, and can be calculated and maintained to thehigh standards of accuracy demanded by FTSE Russell. The following bodies contribute to the assessment:

2.2

Technical Forums
The Technical Forums considers the technical elements of a new or existing index, with a view to ensuringthat the appropriate standards are met and are within the delegated risk appetite. The Technical Forums will
ascertain whether the index is capable of meeting its stated objectives, that the proposed constituent
weighting mechanisms are soundly grounded, and that the index will continue to measure the underlying
economic reality in times of economic stress.

2.3

Operational Forums
The Operational Forums assess whether a proposed or changed index can be maintained. The OperationalForums allow those who will maintain the index on a day-to-day basis and those that will periodicallyconduct the reviews or reconstitutions of the index to discuss the feasibility of implementing the proposed
methodology and, if appropriate, suggest alternative approaches.

2.4

Methodology Forums
The Methodology Forums ensure that the methodology documentation, including Ground Rules,
calculation guides and pricing guides, for a new or modified index is written to the standards required byFTSE Russell. Specifically, methodology documentation should be clear and unambiguous in order toensure that the implementation of the index matches the expectations of index users and otherstakeholders. Where a new index makes use of contributed input data (as defined in the European
Benchmark Regulation), the Methodology Forum will ensure that a code of conduct is agreed with thecontributor. Once assessed, recommendations for new or amended methodologies are put forward to theIndex Governance Board for approval.

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2.5

External Advisory Committees
For the majority of standard index families, FTSE Russell retains a roster of external advisory committees
whose members are independent experts drawn from asset managers, asset owners, consultants and otherstakeholders. The relevant external advisory committees are consulted on prospective changes to index
methodologies to ensure that any proposals are acceptable to index users. For significant methodology
changes that have the potential to change the composition of an index, the external advisory committee may
recommend that changes are put to wider consultation. In such circumstances, the external advisorycommittees will provide feedback on the construction of the consultation and on the responses received.
Further information on the FTSE Russell external advisory committees is provided here.

2.6Index Product Committee (IPC)
The Index Product Committee oversees and manages the approval process for new index products,
changes to existing products and approves index decommissions in line with the FTSE Russell Index SeriesDecommissioning Statement. Evaluation and product readiness meetings are held to support themanagement of the product delivery process.

2.7

Index Management Board (IMB)The Index Management Board oversees and drives implementation of the FTSE Russell Index Business
Plan and manages day to day financial, commercial, operational and service performance of the IndexBusiness.

2.8

FTSE Russell Risk Committee
Oversees the implementation of the LSEG Enterprise Risk Management Framework across FTSE Russell.
Responsible for setting the Risk Appetite and monitoring risk exposure and assessing plans to bring risks
which are near or outside appetite back within appetite. Assesses newly identified risks and effectiveness ofrisk mitigation plans. Reports on the status of top risks to the Index Management Board, FTSE Board andGroup Risk Committees, as appropriate.

2.9

Operations Committee
The Operations Committee is a sub-committee of the IMB and considers key performance metrics andassociated updates on operational, technology, cyber and service-related items. The IMB receives updates
on the main topics considered at the Operations Committee and any points requiring escalation.

2.10

Service Review Boards
Reporting into the Operations Committee, the Service Review Board considers the performance of services
against agreed metrics, reviews the services of third-party suppliers and considers planned service
improvements and risk remediations.

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Section 3

Second line of defence

3.

Second line of defence

3.1

Oversight Committee
The oversight of all aspects of the provision of benchmarks is the responsibility of staff drawn from thesecond line of defence and the relevant oversight body is the FTSE Russell Oversight Committee. Voting
members of the Oversight Committee include the Head of Compliance for Benchmark & Index Solutions(chair) and nominated representatives from Risk and Legal. Relevant first line managers who are invited toattend and provide reports include the Chair of the Index Governance Board, the Head of Index
Management, the Head of Data Management and the Head of Index Policy.
The Oversight Committee, together with the external advisory committees, forms the essential part of theoversight function required by the European Benchmark Regulation and the UK Benchmark Regulation. Theduties of the Oversight Committee include receiving assurance from the first line of defence (the Index
Governance Board) that it has adhered to the firm’s control framework and risk appetite, and that productgovernance has operated in compliance with the European Benchmark Regulation and the UK Benchmark
Regulation. Specifically, the Oversight Committee requires assurance from the Index Governance Board:that it has reviewed benchmark methodology documents and statements; that changes to benchmark
methodologies have been conducted in accordance with the FTSE Russell Policy for Benchmark
Methodology Changes; that the quality and suitability of input data has been periodically assessed; that
where input data has been contributed, the relevant code of conduct has been adhered to; that themeasurement of the underlying economic reality has not been impaired by a lack of transactions; and that
outsourced services have been properly overseen and their continued quality confirmed.
In addition to receiving assurance from the Index Governance Board on these points, the OversightCommittee is able to request independent reports from LSEG internal audit and from firms that offer external
assurance services to test whether the control framework for the administration of benchmarks has beenadhered to.
To ensure the propriety of the benchmarks administered by FTSE Russell, the Oversight Committee
evaluates any client complaints with respect to the determination of a benchmark and assesses whether theFTSE Russell Benchmark Determination Complaints-Handling Policy has been properly followed. TheOversight Committee investigates reports, if any, received via the whistleblowing hotline. It also reviews theconflicts of interest schedule and ensures that appropriate action is taken to manage and disclose conflictsof interest effectively. Should one of the chairs of an advisory committee have concerns that FTSE Russell
is not administering an index in the best interest of the index users and other stakeholders, they are invited
to make independent representation to the Oversight Committee to that effect.
In the event that through its responsibilities, the Oversight Committee becomes aware of any attempt, orpotential attempt, to manipulate a benchmark, either through misconduct of the administrator or acontributor, the chair of the Oversight Committee, or another voting member of the Committee, will report
the event to the Financial Conduct Authority.

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Section 4

Third line of defence

4.

Third line of defence

4.1

Internal audit
The Internal Audit function provides reasonable independent assurance to the Board and other key
stakeholders over the adequacy and effectiveness of the Group’s system of internal controls, thegovernance model and the Enterprise-wide Risk Management Framework. The function is the third line ofdefence in the Group’s risk control structure and has no operational responsibilities over the entities orprocesses which it reviews.

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Appendix

Terms of reference

Links to the terms of reference for the internal governance bodies are published on the FTSE Russell website
at governance.
Links to the terms of reference for the external advisory bodies, a template member appointment letter, copies of thepublic minutes, summaries of committee discussions and the committee meeting schedule are published on the FTSE
Russell website at index-standards

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