2015 Annual Report Annual ReportAnnual 2015 Contents Important Notice 2 Definitions 5 President’s Statement 8 Company Profile and Key Financial Indicators 10 Summary of the Company’s Business 49 Management Discussion and Analysis and Report of the Board 57 Major Events 139 Changes in Ordinary Shares and Shareholders 180 Preferential Shares 195 Directors, Supervisors, Senior Management and Staff 196 Corporate Governance Report 229 Corporate Bonds 287 Financial Report 296 Index of Documents for Inspection 445 Disclosures 446 2 HUATAI SECURITIES CO., LTD. Important Notice The Board of Directors, the Supervisory Committee, Directors, Supervisors and senior management of the Company undertake that the information in this annual report is true, accurate and complete and contains no false record, misleading statement or material omission, and assume individual and joint liabilities to the information in this report. This report was considered and approved at the twenty-ninth meeting of the third session of the Board of the Company. All Directors of the Company attended the Board meeting. None of the directors and supervisors had objections towards this report. The annual financial report prepared by the Company in accordance with China Accounting Standards for Business Enterprises and the International Financial Reporting Standards was audited by KPMG Huazhen LLP and KMPG respectively, which issued a standard unqualified audit report to the Company. Zhou Yi, officer in charge and officer in charge of accounting of the Company, and Shu Ben’e, officer in charge of the accounting office of the Company (head of accounting department), hereby warrant and guarantee that the financial report contained in the annual report is true, accurate and complete. The profit distribution plan or the reserve capitalization plan for the Reporting Period considered by the Board: As audited by KPMG Huazhen LLP, the profit for the year of the parent company for 2015 was RMB9,145,222,410.50. According to the relevant requirements of the Company Law, Securities Law, Financial Rules for Financial Enterprises 《金( 融企業財務規則》) and the Articles of Association of the Company, the Company had appropriated 10% statutory surplus reserve, 10% general risk reserve and 10% trading risk reserve of RMB2,743,566,723.15 in total, after which, the profit available for distribution for the year was RMB6,401,655,687.35. Plus the balance of undistributed profit of RMB7,327,694,049.30 in previous years and less the dividend of RMB2,800,000,000.00 distributed according to the profit distribution plan of the Company for 2014, the accumulated profit available for distribution to investors in cash for the year was RMB10,929,349,736.65. According to the relevant requirements of the Regulatory Guideline No. 3 for Listed Companies — Cash Dividend of Listed Companies 《上市公司監管指引第( 3號 – 上市公司現金分紅》) and the Guidelines of Shanghai Stock Exchange for the Distribution of Cash Dividend by Listed Companies 《上海證券交易所上市公司現金分紅指引》( ) and based on the actual needs of the Company for business development, the profit distribution plan is proposed as follows: The Company will make profit distribution by way of cash dividend for 2015, to distribute cash dividend to all the holders of A shares and H shares whose names appear on the register of shareholders on the record date for cash dividend distribution for 2015, the amount of which will be RMB5.00 (tax included) per 10 shares in cash based on the total share capital of 7,162,768,800 shares as of the end of 2015, with an aggregate amount of RMB3,581,384,400.00. The undistributed profit of RMB7,347,965,336.65 will be carried forward to the next year. Cash dividend is denominated and declared in RMB and paid to holders of A shares in RMB and to holders of H shares in HKD. The actual distribution amount in HKD would be calculated at the rate of average basic exchange rate of RMB against HKD issued by the People’s Bank of China for the five business days prior to the 2015 annual general meeting of the Company. 2015 Annual Report 3 Important Notice This profit distribution plan will be submitted to the annual general meeting of the Company for 2015 for consideration, and it is expected that the annual dividend for 2015 will be distributed to the shareholders of the Company within two months, after such plan is approved at the general meeting but in any event no later than August 31, 2016. Forward-looking statements including future plans and development strategies involved in this report do not constitute the Company’s substantive commitments to investors. The investors are advised to pay attention to investment risks. There is no non-operating misappropriation of funds of the Company by any controlling shareholders and their related parties during the Reporting Period. The Company has not provided any guarantees in favor of others in violation of the decision-making procedures during the Reporting Period. The report of the Company is prepared in both Chinese and English. In the event of any inconsistency, the Chinese version should prevail. WARNING ON MAJOR RISKS Almost all of the Company’s assets are located in China, and a substantial majority of its revenue is derived from the securities markets in China, so the Company’s business is highly dependent on the economic and market conditions in China. On the one hand, like other companies in the securities industry, the Company’s business is directly affected by the inherent risks associated with the securities markets, such as the factors like market volatility and fluctuations in the trading volume. On the other hand, the Company’s business is also subject to general economic and political conditions, such as the factors like macroeconomic and monetary policies, legislation and regulations affecting the financial and securities industries, upward and downward trends in the business and financial sectors, inflation, currency fluctuations, availability of short-term and long-term market funding sources, cost of funding and the level and volatility of interest rates. The Company can provide no assurance that the favorable domestic economic and market conditions will be sustained. In recent years, along with the gradually loosening regulation on the securities industry in China and the continuous diversification of securities businesses and products, the domestic securities industry is facing increasingly intensified competition, and the Company’s business may be materially and adversely affected if it fails to compete effectively. Affected by multiple factors like internet securities and “multiple accounts per person”, the commission rates of securities brokerage business may continue to go downward, the trading volume in and the activity of the market can hardly remain at a high level continuously, and the spreads of capital-based intermediary business may further narrow down, all of which may adversely affect the growth of the Company’s brokerage and wealth management businesses. With the substantial advancement of the reform on the stock issue system, the investment banking business of the Company will be faced with severe challenges in various aspects such as trading execution, customer exploration, pricing and distribution capability, and in the meanwhile, the income of our investment banking business may be adversely affected by the fluctuations of the capital market. Along 4 HUATAI SECURITIES CO., LTD. Important Notice with the lowering of the access threshold for the asset management industry and the intensified competition among mixed businesses or unfavorable economic and market conditions, the asset under management of the Company may be reduced or the performance of the Company’s assets management may be affected, which may result in a negative impact on the asset management fees or performance rewards charged by the Company. Since the domestic derivatives market is not able to provide adequate methods and trading of stock index futures is temporarily restricted, it is difficult for the Company to effectively defend itself from market risks. In the meanwhile, the Company actively takes measures to maintain the stability of the capital market and sharply expands the scale of directional investment, and the performance of the Company’s investment and trading business is closely related to the performance of the domestic securities market. The Company strives to expand its business coverage and provide new products and new services, while business innovation may cause the Company to be exposed to increased risks or additional risks. The Company is one of the few securities companies that have obtained the regulatory rating of AA from CSRC for six consecutive years. Affected by the factors like the administrative regulatory measures imposed during the Reporting Period, the Company can provide no assurance that the CSRC will not lower the regulatory rating of the Company in future, which may limit the Company’s abilities to carry out pilot projects and launch new businesses. Due to the expansion of the Company’s traditional and innovative businesses, the Company needs to maintain sufficient liquidity for business operations, and in the event that the cash generated from the operating activities is not sufficient to meet the liquidity or regulatory capital requirements, the liquidity, profit and businesses of the Company may be adversely affected. The Company follows its internal risk management framework and procedures to manage risks, while the risk management policies, procedures and the internal control of the Company may not reduce the risks in a sufficient and effective manner or enable the Company to avoid risks not identified yet or unpredictable. In the meanwhile, under the rapidly developing market conditions, the information and empirical data on which the risk management methods of the Company are based may become inappropriate due to changes in the market and regulatory environment. The Company’s operations depend on key management and professional staff, and the success of its business is dependent to a large extent on the continuity of its senior management and its ability to attract and retain key personnel.