Q: What is the underlying philosophy behind creating and managing the FTSE indices?

A: The key aspects of the FTSE index philosophy are openness, transparency, and clarity of the methodology. The market participants do not like the uncertainty; they want to know how an index will behave and to understand how we treat corporate actions when they occur. So when you buy a FTSE Index, you buy it because of the transparency and the methodology. Everything related to our indices is published; people can calculate them for themselves if they want to.

We use a similar range of standards across the world under openly published basic precepts. Most of our indices are also backed by independent committees of market practitioners. Since there might be domestic standards that apply only for a certain market, we work with local experts who advise us on the best construction of the index. But then we apply our clear and transparent methodology so that investors know what they’re getting.

The openness is a crucial aspect of our work. When we rebalance the indices, we provide a number of tools to the clients to help them track and use the indices, as well as a decent time period to rebalance their portfolios before the implementation. The tracking tools allow them to know what the index is likely to look like on the actual implantation day, so we don’t simply provide data. We also provide the tools to assist them in their portfolio management.

Q: What is the scope of your operations and your growth strategy?

A: Today the FTSE is a global company. Of course, our roots are in the UK, but we have operations in Hong Kong and the U.S., as well as partnerships and sales offices around the world. We approach new markets, both in terms of geography, asset classes and market segments, in a variety of ways. In some cases the market participants, such as investment banks, fund managers, and asset managers, want to use the FTSE as an independent index provider for a particular market niche. In those cases we act in response to demand from market participants.

Separately, we might approach a particular stock exchange that needs regularizing the indices and having them calculated according to internationally accepted standards that are transparent and accepted around the world. Exchanges also seek to create indices that are suitable for the construction of financial products and serve the markets that they operate in.

So we have different approaches based on the geography or the asset class. For example, the FTSE Private Banking Index Series was created due to demand from an organization called Private Banking Index Ltd. But we always seek to serve the markets and to create indices that actually form the basis of proper benchmarks or the creation of structured products.

Q: How many indexes do you manage?

A: We manage about 150,000 indices every day. Yes, it is a large number of indexes. A large number of those indices are in the FTSE Global Equity Index Series, which includes large, medium and smallcap companies from countries all over the world. We also cover fixed income securities and all kinds of asset classes.

On top of that, we have a very large number of customized indices that we create for clients. We are increasingly working with investment banks, which used to calculate their own in-house indices for their hedge fund clients. They outsource that work to us because index creation is not their core business. Since their work and their clients are private, their ideas are carefully guarded by us, but we take away the pain of calculating the indices. We also provide management and tracking services for them because, as a third-party provider, we provide objectivity and guarantee the correctness of the calculations.

Q: What services do you provide to the exchanges? Could you illustrate the nature of those relationships with some examples?

A: One example would be our seven year old relationship with the johannesburg Stock Exchange in South Africa. Initially, we took over the calculation and the licensing of all the JSE indices of the JSE Africa series, which was re-titled to the FTSE/JSE Africa series. In the process, we applied our classifi cation series, our knowledge and market-cap approach to make sure that the indices are governed by the FTSE ground rules and methodology.

Then we created a number of new indices in response to market demand. For instance, recently we came out with a new benchmark called the FTSE/JSE International Benchmark Index which is designed for offshore investors. It is similar to FTSE all World index, excluding South Africa, so that it can be used as a benchmark by offshore investors. We’ve also just developed non market-cap weighted indices, the FTSE/JSE RAFI Index Series in partnership with Research Affiliates.

In that relationship we started by taking the baseline indices to international standards, and then we continually grew that series. We also do a lot of custom work for clients in South Africa and we’re expanding in response to market demand. That’s a fast growing market, where ETF interest is relatively new, and we are creating tradable products for them.

The five year old relationship with the Madrid Stock Exchange is different. In that case, we don’t actually work on the main IBEX 35 Index. They have maintained their own central benchmark, but we have created some specifi c products. Such products are the benchmarks for the exposure to latin america calculated in euro, which is an important feature for the European markets.

Since the Spanish market is particularly keen on the principles of socially responsible investments, or SRI, we work together on developing a specifi cally designed benchmark that stick to those principles. We have an index series called FTSE4- Good Index Series, which is our corporate SRI series, and we apply those principles to create FTSE4Good IBEX, which will be a tradable index available in March 2008. That request came following good cooperation with the Madrid Spanish Stock Exchange and now we are entering the phase of market consultation to include as many companies as we can.

Generally, FTSE4Good works by setting the bar at a certain standard and excluding companies for a variety of reasons. Then we aim to include more companies and to raise the standards of corporate social responsibility across a particular market. Over the five years of existence of our FTSE4Good Index series, we have excluded 100 companies from the original global universe but we have included 300 companies, because more companies are keen to engage with us. They see the value of being included in the series because investments follow these indices.

Q: What are other major areas of activity, other than the partnerships with the exchanges?

A: We have a joint venture with Dow Jones for ICB, or the Industry Classification Benchmark. That means that we actually partner with a competitor, but now the ICB has become the de facto standard for industry classification within indices. It enables investors to slice and dice information in a very accurate way and to formulate their investment strategies on that basis. ICB drills down into industries and sectors, and goes deeper and categorizes more companies than anybody else. Every major stock exchange in the world, except Japan, uses ICB. Every information vendor in the world has ICB as its classification series of choice. Standard and Poor’s has its service, but the ICB that we created with Dow Jones a couple of years ago has overtaken the others.