Annual Report 2017 Annual Report 2017 For more information, please refer to : CONTENTS DEFINITIONS 2 Chairman’s Statement 5 Section I Important Notes 6 Section II Company Profile and Major Financial Information 7 Section III Company Business Overview 17 Section IV Discussion and Analysis on Operation 22 Section V Directors’ Report 60 Section VI Other Significant Events 74 Section VII Changes in Shares and Information on Shareholders 87 Section VIII Directors, Supervisors, Senior Management and Staff 94 Section IX Corporate Governance Report 113 Section X Independent Auditor’s Report 138 Section XI Consolidated Financial Statements 143 Appendix I Information on Securities Branches 240 Appendix II Information on Branch Offices 276 China Galaxy Securities Co., Ltd. Annual Report 2017 1 DEFINITIONS “A Share(s)” domestic shares in the share capital of the Company with a nominal value of RMB1.00 each, which is (are) listed on the SSE, subscribed and traded 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 Stock Exchange 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), the A Shares of which are listed on the SSE (Stock Code: 601881) “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 “End of the Reporting Period” 31 December 2017 “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）, owned as to 100% by the Company and a wholly-owned subsidiary of the Company “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, which currently holds 50.91% of the issued share capital of the Company “Galaxy Fund Management” Galaxy Fund Management Company Limited（銀河基金管理有限公司）, owned as to 50% by Galaxy Financial Holdings and a non-wholly owned subsidiary of Galaxy Financial Holdings “Galaxy Futures” Galaxy Futures Company Limited（銀河期貨有限公司）, owned as to approximately 83.32% by the Company and a non-wholly owned subsidiary of the Company “Galaxy International Holdings” China Galaxy International Financial Holdings Company Limited（中國銀河國際金融 控股有限公司）, owned as to 100% by the Company and a wholly-owned subsidiary of the Company “Galaxy Jinhui” Galaxy Jinhui Securities Assets Management Co., Ltd（. 銀河金匯證券資產管理有 限公司）, owned as to 100% by the Company and a wholly-owned subsidiary of the Company 2 China Galaxy Securities Co., Ltd. Annual Report 2017 DEFINITIONS “Galaxy Yuanhui” Galaxy Yuanhui Investment Co., Ltd（. 銀河源匯投資有限公司）, owned as to 100% by the Company and a wholly-owned subsidiary of 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 held an equity interest of approximately 78.57% of Galaxy Financial Holdings as at the End of the Reporting Period “IPO” Initial Public Offering “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 Issuers set out in the Appendix 10 to the Stock Exchange 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 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 2017 to 31 December 2017 “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 Counc（il 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 China Galaxy Securities Co., Ltd. Annual Report 2017 3 DEFINITIONS “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 “SSE Listing Rules” the Rules Governing the Listing of Securities on the Shanghai Stock Exchange (as amended from time to time) “Stock Exchange Listing Rules” the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (as amended from time to time) “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 “VaR” value at risk 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 2017 CHAIRMAN’S STATEMENT Dear shareholders, In 2017, adhering to the spirit of the 19th National Congress of the Communist Party of China, the Central Economic Work Conference and the National Financial Work Conference, the Company continuously adapted to the changing situation of “strict supervision and keen competition” in the securities industry and seized the development trend of the industry. Towards the strategic target of “building a carrier securities broker and a modern investment bank”, the Company made its transformation to the business model of “Dual-wheel Drive and Coordinated Development” and timely performed comprehensive management system reforms. In the process of transformation and development, thanks to the strong support of all shareholders and the joint efforts of all employees, the Company safeguarded its steady operation and achieved satisfactory results. In 2017, the Company realized revenue and other income of RMB15.986 billion and net profits attributable to shareholders of the Company of RMB3.981 billion, with the weighted average return on net assets of 6.33%. In 2017, the Company completed IPO for A Shares, becoming the second securities broker with H Shares and A Shares successively listed. The Company’s businesses achieved “steady progress” amidst keen market competition: net income from the securities brokerage business was among first tier securities companies; the dealer-quoted securities repurchase business grew robustly; the market ranking in terms of scale of the asset management business rapidly increased, which helped diversify the sources of operating income of the Company. With the acceleration of the Company’s internationalization, Galaxy International Holdings, as the acquirer, has made significant progress in its acquisition of the securities business of the CIMB Group in Malaysia. In 2018, under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the Company will strengthen Party building work, implement national strategies and comply with regulatory requirements. Leveraging capital market instruments in a reasonable manner with greater efforts on systematic risk prevention and control, the Company will strive to serve the real economy from various aspects such as improving mechanisms, integrating resources and making up for shortcomings, promote the sustainable development of its businesses with “stable progress and prospects for improvement”, raise the core competitiveness of the Company, fulfil its social responsibilities, provide better services to clients and a better platform to our staff, so as to create greater value for our shareholders. China Galaxy Securities Co., Ltd. Chen Gongyan Chairman 28 March 2018 China Galaxy Securities Co., Ltd. Annual Report 2017 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