2015 Annual Report Annual Report 2015 CONTENTS DEFINITIONS 2 Chairman’s Statement 5 Section I Important Notes 6 Section II Significant Risk Warnings 7 Section III Company Profile 8 Section IV Summary of Accounting Data and Financial Indicators 43 Section V Management Discussion and Analysis 49 Section VI Directors’ Report 90 Section VII Other Significant Events 104 Section VIII Changes in Shares and Information of Substantial Shareholders 111 Section IX Directors, Supervisors, Senior Management and Staff 114 Section X Corporate Governance Report 133 Section XI Independent Auditor’s Report 159 Section XII Consolidated Financial Statements 160 China Galaxy Securities Co., Ltd. Annual Report 2015 1 DEFINITIONS In this report, unless the context otherwise requires, the following terms and expressions have the meanings set forth below. “A Share(s)” the shares that is (are) traded on the Shanghai Stock Exchange or the Shenzhen Stock Exchange in Renminbi “Article of Association” the articles of association of the Company (as amended from time to time) “Board” or“ Board of Directors” the Board of Directors of the Company “bp” unit of measurement for the change in interest rate of bonds and notes, one bp equals to 1% of a percentage point “CG Code” Corporate Governance Code and Corporate Governance Report set out in Appendix 14 to the Listing Rules “Company” China Galaxy Securities Co., Ltd.（中國銀河證券股份有限公司）, a joint stock limited company incorporated in the PRC on 26 January 2007, whose H Shares are listed on the Hong Kong Stock Exchange (Stock Code: 06881) “Company Law” the Company Law of the People’s Republic of China “CSRC” the China Securities Regulatory Commission（中國證券監督管理委員會） “Directors” directors of the Company “Domestic Share(s)” issued ordinary share(s) in the share capital of the Company with a nominal value of RMB1.00 each, which is(are) subscribed for or credited as fully paid in RMB “End of the Reporting Period” 31 December 2015 “ETF” exchange-traded funds “Futures IB Business” the business activities in which securities firms, as commissioned by futures companies, introduce clients to futures companies to provide futures brokerage and other related services “Galaxy Capital” Galaxy Capital Management Company Limited（銀河創新資本管理有限公司）, in which the Company holds an equity interest of 100% “Galaxy Derivative” Galaxy Derivative Financial Service Co., Ltd.（銀河德睿資本管理有限公司）, whose equity interest is held as to 70% and 30% by Galaxy Futures and Galaxy Financial Holdings, respectively “Galaxy Financial Holdings” China Galaxy Financial Holdings Limited（中國銀河金融控股有限責任公司）, the controlling shareholder of the Company “Galaxy Fund Management” Galaxy Fund Management Company Limited（銀河基金管理有限公司）, in which Galaxy Financial Holdings holds an equity interest of 50% “Galaxy Futures” Galaxy Futures Company Limited（銀河期貨有限公司）, in which the Company holds an equity interest of approximately 83.32% “Galaxy International Holdings” China Galaxy International Financial Holdings Company Limited（中國銀河國際金融 控股有限公司）, in which the Company holds an equity interest of 100% 2 China Galaxy Securities Co., Ltd. Annual Report 2015 DEFINITIONS “Galaxy Investment” China Galaxy Investment Management Company Limited（中國銀河投資管理有限公 司） “Galaxy Jinhui” Galaxy Jinhui Securities Assets Management Co., Ltd.（銀河金匯證券資產管理有限 公司）, whose 100% equity is held by the Company “Group” the Company and its subsidiaries “H Share(s)” overseas listed foreign shares in the share capital of the Company with a nominal value of RMB1.00 each, which is(are) listed on the Hong Kong Stock Exchange and are subscribed for and traded in HK dollars “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited “Huijin” Central Huijin Investment Ltd.（中央滙金投資有限責任公司）, which currently holds a 78.57% equity interest of Galaxy Financial Holdings “IPO” Initial Public Offering “Listing Date” the date on which the Company’s H Shares were listed on the Hong Kong Stock Exchange, being 22 May 2013 “Listing Rules” the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (as amended from time to time) “margin and securities refinancing” a business in which securities firms can act as intermediaries to borrow funds or securities from the China Securities Finance Co., Ltd. and lend such funds and securities to their clients “Market Share” the market share “Model Code” the Model Code for Securities Transactions by Directors of Listed Companies set out in the Appendix 10 to the Listing Rules “New OTC Board” National Equities Exchange and Quotations for medium and small-sized enterprises “PRC” or“ China” the People’s Republic of China, and for the purposes of this annual report, excluding Hong Kong, Macau Special Administrative Region and Taiwan region “QDII” Qualified Domestic Institutional Investor “QFII” Qualified Foreign Institutional Investor “Reporting Period” the period from 1 January 2015 to 31 December 2015 China Galaxy Securities Co., Ltd. Annual Report 2015 3 DEFINITIONS “RQFII” Renminbi Qualified Foreign Institutional Investor, a pilot program launched in the PRC which allows Hong Kong subsidiaries of PRC brokerage companies and fund houses to facilitate investments of offshore Renminbi into the PRC capital markets “SASAC” the State-owned Assets Supervision and Administration Committee of the State Council（國務院國有資產監督管理委員會） “Securities Law” the Securities Law of the People’s Republic of China “SFC” the Securities and Futures Commission of Hong Kong “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time “SHCI” the Shanghai Composite Index “SSE” the Shanghai Stock Exchange “Supervisors” supervisors of the Company “Supervisory Committee” the supervisory committee of the Company “SZCI” the Shenzhen Component Index “SZSE” the Shenzhen Stock Exchange “HK$” or“ HK dollars” Hong Kong dollars, the lawful currency of Hong Kong “RMB” or“ Renminbi” Renminbi, the lawful currency of the PRC “US$” or“ U.S. dollars” or“ USD” United States dollars, the lawful currency of the United States Notes: 1. In this report, any discrepancies between totals and sums of amounts listed are due to rounding. 2. This report is prepared in both Chinese and English languages and in the event of any inconsistency, the Chinese version shall prevail. 4 China Galaxy Securities Co., Ltd. Annual Report 2015 CHAIRMAN’S STATEMENT Dear shareholders, In 2015, the Chinese capital market fluctuated violently. The Company insisted in prudent operation principle and achieved better operating performance under collective efforts of all employees of the Company. Total revenue and other income was RMB33.759 billion. The net profit attributable to shareholders of the Company was RMB9.836 billion, an increase of 159.36% and 160.84%, respectively, compared to that in 2014, and the weighted average return on net assets was 21.33%. During this year, the Company successfully completed the placing of 2 billion H shares, which promptly funded for its business development. Next session of the Board and the special committees was elected and completed handed-over work smoothly. Meanwhile, the Company kept deepening market-oriented reform, optimizing risk management system and establishing a comprehensive risk control system so as to secure the implementation of strategy and business transformation of the Company. In 2015, the Company obtained the qualification for option settlement and quotation for debt financing instruments of non-financial corporations, which further extended its business. 2016 is the last year of the Company’s current five-year strategic plan, as well as the first year of the next one. The Company will adapt to the change in regulatory system. Through active reform and structure adjustment, the Company will enjoy benefits and achieve breakthroughs in internationalization. In such regard, the Company will insist in legal operation and safeguard the bottom line while further advancing the process of listing of A Shares to keep strengthening its capital. The Company will make innovative reform, continuously optimize governance mechanism and increase its core competitiveness in order to create better value for the shareholders. By order of the Board China Galaxy Securities Co., Ltd. Chen Youan Chairman 24 March 2016 China Galaxy Securities Co., Ltd. Annual Report 2015 5 SECTION I IMPORTANT NOTES The Board of Directors, Supervisory Committee, Directors, Supervisors and senior management of the Company undertake that there is no misrepresentation, misleading statement or material omission in this report and they are jointly and severally liable for the authenticity, accuracy and completeness of the information contained in this annual report. This report has been approved at the 11th meeting of the 3rd session of the Board of Directors, with 10 directors attended and voted at the meeting. Mr. Chi Fulin (director) cannot attend the meeting and authorized Mr. Liu Feng in writting to attend the meeting and vote at the meeting on behalf of him. No objection was put forward by Directors and Supervisors for this report. The financial report for 2015 was prepared by the Company according to International Financial Reporting Standards (“IFRs”) and PRC Corporate Accounting Standards (“PRC GAAP”), which has been audited by Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certified Public Accountants LLP and they have issued auditors’ report with unqualified opinions. Unless otherwise stated,