Annual Report 2018 Annual Report For more information, please refer to : 2018 CONTENTS DEFINITIONS 2 Section I Important Notes 5 Section II Company Profile and Major Financial Information 6 Section III Company Business Overview 17 Section IV Discussion and Analysis on Operation 22 Section V Directors’ Report 59 Section VI Other Significant Events 73 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 139 Section XI Consolidated Financial Statements 144 Appendix I Information on Securities Branches 278 Appendix II Information on Branch Offices 314 China Galaxy Securities Co., Ltd. Annual Report 2018 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 “Articles 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” or“ We” 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 2018 “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 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 “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 holds 51.16% 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 Investment” China Galaxy Investment Management Company Limited（中國銀河投資管理有限公 司）, owned as to 100% by Galaxy Financial Holdings and a 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 2 China Galaxy Securities Co., Ltd. Annual Report 2018 DEFINITIONS “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 “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 “HK$” or“ HK dollars” Hong Kong dollars, the lawful currency of Hong Kong “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 69.07% of Galaxy Financial Holdings “IPO” Initial Public Offering “Stock Exchange 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 “Model Code” the Model Code for Securities Transactions by Directors of Listed Companies 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 “RMB” or“ Renminbi” Renminbi, the lawful currency of the PRC “Reporting Period” the period from 1 January 2018 to 31 December 2018 “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 China Galaxy Securities Co., Ltd. Annual Report 2018 3 DEFINITIONS “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 “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time “Singapore dollars” Singapore dollars, the lawful currency of Singapore “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) “Supervisors” supervisors of the Company “Supervisory Committee” the supervisory committee of the Company “SZCI” the Shenzhen Component Index “SZSE” the Shenzhen Stock Exchange “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 2018 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 report. This report has been approved at the 50th meeting of the 3rd session of the Board of Directors, with 9 Directors attended and voted at the meeting. Due to some reason, Guo Weiguo, the Director, gave written authorization to Chen Gongyan, another Director, to act as his proxy to attend and vote at the meeting. No objection was put forward by Directors and Supervisors for this report. The financial report for 2018 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 an standard auditors’ report with unqualified opinions. Unless otherwise stated, the amounts in this report are presented in RMB. Mr. Chen Gongyan, person in charge of the Company, Ms. Zhu Ruimin, person in charge of the accounting affairs, and Mr. Fan Minfei, person in charge of the accounting department (head of accounting) hereby confirm that the financial report as disclosed in this report are true, accurate and complete. The forward-looking statements such as future plans, development strategies contained in this report do not constitute substantive undertakings by the Company to investors who are advised to be cautious about investment risks. Business of the Company is highly dependent on the overall economy and market conditions of China and regions where our businesses are located. Any fluctuations in China and international capital markets will have a significant impact on the Company’s operating results. The risks that the Company faces mainly include: legal and compliance risks as a result of our business management and norms failing to follow up in a timely manner to meet the adjustment in laws and regulations as well as the rules of regulatory bodies; strategic risks arising from the formulation of strategy plan under profound changes in domestic and overseas capital markets; risks of internal operations and management arising from changes of business model transformation, commencement of innovative business and changes of new technologies; market risk caused by price fluctuation in the market in which the Company holds positions of securities; credit risks arising from breach of contracts by borrowers or counterparties; liquidity risk arising from shortage of funds when the Company attempts to fulfil its obligations of payment; and operational risk arising