ANNUAL REPORT 2017 * For identification purpose only CONTENTS Section I DEFINITIONS AND IMPORTANT RISK WARNINGS 3 Section II COMPANY PROFILE AND KEY FINANCIAL INDICATORS 7 Section III SUMMARY OF THE COMPANY’S BUSINESS 23 Section IV REPORT OF THE BOARD OF DIRECTORS 29 Section V SIGNIFICANT EVENTS 74 Section VI CHANGES IN ORDINARY SHARES AND PARTICULARS ABOUT SHAREHOLDERS 104 Section VII PREFERENCE SHARES 114 Section VIII PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES 115 Section IX CORPORATE GOVERNANCE 164 Section X CORPORATE BONDS 202 Section XI FINANCIAL REPORT 212 Section XII DOCUMENTS AVAILABLE FOR INSPECTION 213 Section XIII INFORMATION DISCLOSURE OF SECURITIES COMPANY 214 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share) 1 IMPORTANT NOTICE The Board, the Supervisory Committee, Directors, Supervisors and senior management of the Company warrant the truthfulness, accuracy and completeness of contents of this annual report (the “Report”) and that there is no false representation, misleading statement contained herein or material omission from this Report, for which they will assume joint and several liabilities. This Report was considered and approved at the 29th meeting of the sixth session of the Board. The number of Directors to attend the Board meeting should be 13 and the number of Directors who actually attended the Board meeting was 11. Ms. Yu Liping, a non-executive Director, and Mr. Feng Lun, an independent non-executive Director, were unable to attend the Board meeting in person due to business trips, and had appointed Ms. Zhang Xinmei, a non-executive Director, and Mr. Xiao Suining, an independent non-executive Director, to vote on their behalves respectively. None of the Directors or Supervisors has made any objection to this Report. BDO China Shu Lun Pan Certified Public Accountants LLP (Special General Partnership) and Deloitte Touche Tohmatsu has audited the Company’s annual financial reports prepared in accordance with PRC GAAP and IFRS respectively, and issued standard and unqualified audit reports of the Company. All the financial data in this Report are denominated in RMB unless otherwise indicated. Mr. Zhou Jie, Chairman of the Company, Mr. Li Chuqian, Chief Financial Officer, and Mr. Ma Zhong, head of the accounting department warrant the truthfulness, accuracy and completeness of the financial report contained in this Report. The Board considered and approved the profit distribution proposal or proposal on transfer of capital reserve funds into share capital for the Reporting Period, which are as follows: On the basis of the total share capital of 11,501,700,000 A Shares and H Shares as at 31 December 2017, a cash dividend of RMB2.30 for every 10 shares (inclusive of tax) will be distributed to holders of A Shares and H Shares whose names appear on the register of members of the Company on the record date, with a total amount of cash dividend of RMB2,645,391,000.00. The retained profits of the Company of RMB17,817,845,957.76 following the cash dividend distribution will be carried forward to the next year. Forward-looking statements, including future plans and development strategies, may be included in this Report. All statements contained herein other than statements of historical fact are, or may be deemed to be, forward-looking statements. Neither the Company nor any of its subsidiaries undertakes any obligation to publicly update or revise any forward-looking statement as a result of new information. Investors should be reminded of the risks of investments and not place undue reliance on forward-looking statements. No appropriation of funds on a non-operating basis by the Company’s controlling shareholders, if any, or their respective related parties has occurred during the Reporting Period. The Company did not provide external guarantees in violation of the stipulated decision-making procedures during the Reporting Period. HAITONG SECURITIES CO., LTD. 2 Annual Report 2017 (H Share) SECTION I DEFINITIONS AND IMPORTANT RISK WARNINGS I. DEFINITIONS In this Report, unless the context otherwise requires, the following terms and expressions have the meanings set forth below: “A Share(s)” domestic shares of the Company, with a nominal value of RMB1.00 each, which are listed and traded on the Shanghai Stock Exchange “Articles of Association” or “Articles” the articles of association of Haitong Securities “Board” the board of Directors of Haitong Securities “China” or “PRC” the People’s Republic of China, and for the purposes of this Report only, excluding Hong Kong, Macau Special Administrative Region and Taiwan “Code” the Corporate Governance Code and Corporate Governance Report set out in Appendix 14 to the Hong Kong Listing Rules “Company” or “Haitong Securities” Haitong Securities Co., Ltd. “CSRC” the China Securities Regulatory Commission “Director(s)” the director(s) of Haitong Securities “EUR” the official currency of the Eurozone “Fortune HFT” Shanghai Fortune HFT Asset Management Co., Ltd. (上 海富誠海富通資產管理有限公司) ”Fullgoal Fund“ Fullgoal Fund Management Co., Ltd. (富國基金管理有 限公司) “Group” the Company and its subsidiaries “Gui’an UT” Gui’an UT Financial Leasing (Shanghai) Co., Ltd. (貴安恆 信融資租賃（上海）有限公司) HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share) 3 SECTION I DEFINITIONS AND IMPORTANT RISK WARNINGS “H Share(s)” ordinary shares in the share capital of the Company with nominal value of RMB1.00 each, which are subscribed for and traded in HK dollars and are listed on the Hong Kong Stock Exchange ”Haitong Bank“ Haitong Bank, S.A. ”Haitong Capital“ Haitong Capital Investment Co., Ltd. (海通開元投資有 限公司) “Haitong-Fortis PE” Haitong-Fortis Private Equity Fund Management Co., Ltd. (海富產業投資基金管理有限公司) ”Haitong Futures“ Haitong Futures Co., Ltd. (海通期貨股份有限公司) ”Haitong Innovation Securities“ Haitong Innovation Securities Investment Co., Ltd. (海通 創新證券投資有限公司) ”Haitong International Holdings“ Haitong International Holdings Limited (海通國際控股 有限公司) ”Haitong International Securities“ Haitong International Securities Group Limited (海通國 際證券集團有限公司), listed on the Hong Kong Stock Exchange, stock code: 665 “Haitong Resource” Shanghai Haitong Resource Management Co., Ltd. (上海 海通資源管理有限公司) ”Haitong UniFortune“ Haitong UniFortune International Leasing Co., Ltd. (海通 恆運國際租賃有限公司) ”Haitong UniTrust Financial Haitong UniTrust Financial Leasing (Shanghai) Leasing (Shanghai)“ Corporation (海通恆信融資租賃（上海）有限公司) ”Haitong UT“ Haitong UniTrust International Leasing Co., Ltd. (海通恒 信國際租賃股份有限公司) ”Haitong UT Capital“ Haitong UT Capital Group Co., Limited (海通恆信金融 集團有限公司) “Haitong UT Holdings” Haitong UT Holdings Limited (海通恆信融資租賃控股有 限公司) HAITONG SECURITIES CO., LTD. 4 Annual Report 2017 (H Share) SECTION I DEFINITIONS AND IMPORTANT RISK WARNINGS ”Haitong UT Leasing HK“ Haitong UT Leasing HK Limited (海通恆信租賃（香港） 有限公司) “Haitong Xinchuang” Haitong Xinchuang Investment Management Co., Ltd. (海通新創投資管理有限公司) “HFT Investment” HFT Investment Management Co., Ltd. (海富通基金管理 有限公司) “HK$”, “HKD” or “HK dollars” the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China “Hong Kong Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited “HT Asset Management” Shanghai Haitong Securities Asset Management Company Ltd. (上海海通證券資產管理有限公司) “IFRS” International Financial Reporting Standards ”IPO“ initial public offering “Model Code” the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Hong Kong Listing Rules “NEEQ” National Equities Exchange and Quotations (全國中小企 業股份轉讓系統) “NSSF” the National Council for Social Security Fund of the PRC “PRC GAAP” generally accepted accounting principles in the PRC “QDII” Qualified Domestic Institutional Investor “QFII” Qualified Foreign Institutional Investor “Reporting Period” from 1 January 2017 to 31 December 2017 “RMB” or “Renminbi” the lawful currency of the PRC HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share) 5 SECTION I DEFINITIONS AND IMPORTANT RISK WARNINGS “RQFII” Renminbi Qualified Foreign Institutional Investor “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time “Shanghai Stock Exchange” or “SSE” the Shanghai Stock Exchange “Shanghai Weitai Properties” Shanghai Weitai Properties Management Co., Ltd. (上海 惟泰置業管理有限公司) “Shenzhen Stock Exchange” or “SZSE” the Shenzhen Stock Exchange “Supervisor(s)” the supervisor(s) of Haitong Securities “Supervisory Committee” the supervisory committee of Haitong Securities “US$”, “USD” or “U.S. dollars” the lawful currency of the United States of America “Wind Info” Wind Information Co., Ltd. II. IMPORTANT RISK WARNINGS The business of the Company is highly dependent on the securities market conditions in jurisdictions where the Company operates. Our results of operations may be materially affected by various factors, such as macro-economic situations, cyclical fluctuations of the industry, development stages of the market, behaviour of the investors and the international economic environments. The Company is exposed to various risks in its business operations, primarily including (i) policy risks, whereby the operations of securities firms in general are subject to material adverse effect caused by national macro-control measures, and changes of laws, regulations, regulatory policies or trading rules applicable to securities industry;