China Galaxy Securities Co., Ltd. - Proxy Solicitation & Information Statement 2016

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Galaxy Securities Co., Ltd., you should at once hand this circular and the accompanying form of proxy and reply slip to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 06881)

PROPOSED AMENDMENTS TO THE A SHARE OFFERING PLAN AND EXTENSION OF ITS VALIDITY PERIOD

PROPOSED AMENDMENTS TO THE AUTHORIZATIONS CONCERNING THE A SHARE OFFERING AND EXTENSION OF ITS VALIDITY PERIOD PROPOSAL ON THE DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED CONNECTED TRANSACTIONS WITH BANK OF TIANJIN FOR THE YEAR 2015 CONNECTED TRANSACTIONS WITH BANK OF TIANJIN FOR THE YEAR 2016 CONNECTED TRANSACTIONS WITH CHINA INVESTMENT SECURITIES FOR THE YEAR 2016

AND

NOTICES OF EXTRAORDINARY GENERAL MEETING, DOMESTIC SHARE CLASS MEETING AND H SHARE CLASS MEETING

The notices convening the EGM, the Domestic Share Class Meeting and the H Share Class Meeting of China Galaxy Securities Co., Ltd. to be held at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC on Thursday, 24 March 2016 at 9:30 a.m., 10:30 a.m. or immediately after the conclusion of the EGM or any adjournment thereof (whichever is the later), and 11:10 a.m. or immediately after the conclusion of the Domestic Share Class Meeting or any adjournment thereof (whichever is the later), respectively, are set out on pages 13 to 19 of this circular.

If you intend to appoint a proxy to attend the EGM, the Domestic Share Class Meeting and/or the H Share Class Meeting, please complete the enclosed forms of proxy in accordance with the instructions printed thereon and return the same to Computershare Hong Kong Investor Services Limited (for holders of H Shares) or the Office of the Board of Directors of the Company (for holders of Domestic Shares) not less than 24 hours before the time appointed for holding the meetings or any adjournment thereof in person or by post. Completion and return of the forms of proxy will not preclude you from attending and voting in person at the meetings or any adjournment thereof if you so wish.

If you intend to attend the EGM, the Domestic Share Class Meeting and/or the H Share Class Meeting in person or by proxy, please complete the enclosed reply slips and return the same to Computershare Hong Kong Investor Services Limited (for holders of H Shares) or the Office of the Board of Directors of the Company (for holders of Domestic Shares) on or before Thursday, 3 March 2016.

4 February 2016

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . .		13
NOTICE OF DOMESTIC SHARE CLASS MEETING . . . . . . . . . . . . . . . . . . . . . .		16
NOTICE OF H SHARE CLASS MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		18
APPENDIX I	– AMENDED A SHARE OFFERING PLAN . . . . . . . . . . . . . . .	20
APPENDIX II	– AMENDED AUTHORIZATIONS CONCERNING
	THE A SHARE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . .	22
APPENDIX III	– DILUTION OF CURRENT RETURNS AS A RESULT
	OF THE A SHARE OFFERING AND
	THE REMEDIAL MEASURES TO BE ADOPTED . . . . . . .	24

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DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“A Share(s)”
ordinary share(s) that are proposed to be issued under the A Share Offering by the Company, which are intended to be listed on the Shanghai Stock Exchange and traded in RMB
“A Share Offering”
the Company’s proposed initial public offering of not more than 1,693,510,473 A Shares, which are intended to be listed on the Shanghai Stock Exchange
“A Share Offering Plan”
the plan for the A Share Offering
“Articles of Association”
the articles of association of the Company, as amended from time to time
“Authorizations Concerning the A Share Offering”
the authorizations granted by the Shareholders’ general meeting to the Board to deal with specific matters concerning the A Share Offering
“Bank of Tianjin”
Bank of Tianjin Co., Ltd., a joint stock company with limited liability incorporated in the PRC
“Board” or “Board of Directors”
the board of directors of the Company
“China Investment Securities”
China Investment Securities Co., Ltd., a company with limited liability incorporated in the PRC
“Company”
China Galaxy Securities Co., Ltd., a joint stock company with limited liability incorporated in the PRC on 26 January 2007, whose H Shares are listed on the Stock Exchange
“CSRC”
China Securities Regulatory Commission
“Director(s)”
director(s) 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 are subscribed for or credited as fully paid in RMB

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DEFINITIONS

“Domestic Share Class Meeting” the Domestic Share class meeting to be held by the Company at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 10:30 a.m. or immediately after the conclusion of the EGM or any adjournment thereof (whichever is the later)
“EGM” or “Extraordinary General the first extraordinary general meeting of 2016 to be Meeting” held by the Company at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 9:30 a.m.
“Group” the Company and its subsidiaries
“H Share(s)” overseas listed foreign share(s) in the share capital of the Company, with a nominal value of RMB1.00 each, which are listed on the Stock Exchange and traded in Hong Kong dollars
“H Share Class Meeting” the H Share class meeting to be held by the Company at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 11:10 a.m. or immediately after the conclusion of the Domestic Share Class Meeting or any adjournment thereof (whichever is the later)
“HK$” or “HK dollars” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date” 1 February 2016, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended from time to time
“Placing of H Shares” the allotment and issuance of an aggregate of 2,000,000,000 H Shares by the Company on 5 May 2015, details of which are set out in the announcement of the Company dated 5 May 2015

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DEFINITIONS

“PRC” or “China”	the People’s Republic of China, but for the purposes of
	this circular, excluding Hong Kong, Macau Special
	Administrative Region and Taiwan
“RMB” or “Renminbi”	Renminbi, the lawful currency of the PRC
“Shareholders”	shareholders of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

In case of any discrepancy between the Chinese version and the English version of this circular, the Chinese version shall prevail.

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LETTER FROM THE BOARD

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(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 06881)

The Board of Directors:

Executive Directors: Mr. CHEN Youan (Chairman) Mr. GU Weiguo (Deputy Chairman and President) Mr. WU Chengming

Non-executive Directors: Mr. DU Ping Mr. SHI Xun Mr. ZHANG Jinghua Mr. LI Chaoyang

Independent Non-executive Directors: Mr. LIU Feng Mr. LUO Lin Mr. WU Yuwu Mr. CHI Fulin To the Shareholders

Registered Office and Head Office in the PRC: 2-6/F, Tower C, Corporate Square 35 Finance Street Xicheng District, Beijing The PRC

Principal place of business in Hong Kong: Unit 3501-07, 3513-14 35/F, Cosco Tower 183 Queen’s Road Central Sheung Wan Hong Kong

Dear Sir or Madam

PROPOSED AMENDMENTS TO THE A SHARE OFFERING PLAN AND EXTENSION OF ITS VALIDITY PERIOD

INTRODUCTION

On behalf of the Board of Directors, I invite you to attend the EGM, the Domestic Share Class Meeting and the H Share Class Meeting of the Company to be held at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 9:30 a.m., 10:30 a.m. or immediately after the conclusion of the EGM or any adjournment thereof (whichever is the later), and 11:10 a.m. or immediately after the conclusion of the Domestic Share Class Meeting or any adjournment thereof (whichever is the later), respectively.

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with the notices of the EGM, the Domestic Share Class Meeting and the H Share Class Meeting and the information reasonably necessary to enable you to make an informed decision on whether to vote for or against the proposed resolutions or abstain from voting at the meetings.

MATTERS TO BE CONSIDERED AT THE EGM, THE DOMESTIC SHARE CLASS MEETING AND THE H SHARE CLASS MEETING

Special resolutions will be proposed at the EGM, the Domestic Share Class Meeting and the H Share Class Meeting to approve: (1) the amendments to the A Share Offering plan and extension of its validity period, (2) the amendments to the Authorizations Concerning the A Share Offering and extension of its validity period, and (3) the proposal on the dilution of current returns as a result of the A Share Offering and the remedial measures to be adopted.

Ordinary resolutions will be proposed at the EGM to approve: (4) the connected transactions with Bank of Tianjin for the year 2015, (5) the connected transactions with Bank of Tianjin for the year 2016, and (6) the connected transactions with China Investment Securities for the year 2016.

1. AMENDMENTS TO THE A SHARE OFFERING PLAN AND EXTENSION OF ITS VALIDITY PERIOD

Reference is made to (i) the circular and notices of the 2015 first extraordinary general meeting and the class meetings of the Company dated 9 February 2015, and (ii) the announcement on the resolutions passed at the 2015 first extraordinary general meeting and the class meetings dated 26 March 2015, in relation to, among others, the extension of the validity period of the A Share Offering Plan.

As the extended validity period will expire on 25 April 2016 and the A Share Offering is still in the application process, the Company proposed to extend the validity period of the A Share Offering Plan for another 12 months from the date immediately following the expiry of the current validity period. If the Company has obtained the approval documents from the CSRC in relation to the A Share Offering during the new validity period, the new validity period will be automatically extended to the date of issue and listing of the A Shares of the Company.

In addition, the Company proposed to make certain minor amendments to the A Share Offering Plan, including:

(1) As the Company has completed the Placing of H Shares on 5 May 2015, based on the total share capital of the Company after the completion of the Placing of H Shares, the Company proposed to amend the percentage of A Shares to be issued under the A Share Offering Plan to the total share capital of the Company upon completion of the A Share Offering from not exceeding 18.35% to not exceeding 15.08%; and

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LETTER FROM THE BOARD

(2) Pursuant to the latest requirements of the CSRC, the Company proposed to delete the information relating to over-allotment option under the A Share Offering Plan and to make minor amendments to the statements relating to strategic allotment under the A Share Offering Plan.

The amended A Share Offering Plan is set out in Appendix I to this circular.

Effects of the A Share Offering on the shareholding structure of the Company

Assuming that a total of 1,693,510,473 A Shares are permitted for issuance under the A Share Offering and the share capital of the Company remains unchanged prior to completion of the A Share Offering, the shareholding structure of the Company as at the Latest Practicable Date and immediately after the completion of the A Share Offering is set out as follows:

Domestic Shares Domestic Shares in issue A Shares to be issued under the A Share Offering H Shares Total	As at the Latest Practicable Date Number of shares Approximate percentage of the Company’s issued share capital 5,846,274,124 61.30% – – 3,690,984,633 38.70% 9,537,258,757 100%	Immediately after completion of the A Share Offering Number of shares Approximate percentage of the Company’s issued share capital 5,846,274,124 52.06% 1,693,510,473 15.08% 3,690,984,633 32.86% 11,230,769,230 100%	Immediately after completion of the A Share Offering Number of shares Approximate percentage of the Company’s issued share capital 5,846,274,124 52.06% 1,693,510,473 15.08% 3,690,984,633 32.86% 11,230,769,230 100%
			100%

As at the Latest Practicable Date, based on the publicly available information and within the Directors’ knowledge, the Company’s public float satisfied the minimum percentage prescribed in the conditions imposed in the waiver granted by the Stock Exchange from strict compliance with Rule 8.08 of the Listing Rules.

2. AMENDMENTS TO THE AUTHORIZATIONS CONCERNING THE A SHARE OFFERING AND EXTENSION OF ITS VALIDITY PERIOD

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LETTER FROM THE BOARD

As the extended validity period will expire on 25 April 2016 and the A Share Offering is still in the application process, the Company proposed to extend the validity period of the Authorizations Concerning the A Share Offering for another 12 months from the date immediately following the expiry of the current validity period. If the Company has obtained the approval documents from the CSRC in relation to the A Share Offering during the new validity period, the new validity period will be automatically extended to the date of issue and listing of the A Shares of the Company.

In addition, the Company proposed to make certain minor amendments to the Authorizations Concerning the A Share Offering, including:

(1) Pursuant to the latest requirements of the CSRC, the Company proposed to delete the information relating to over-allotment option under the Authorizations Concerning the A Share Offering; and
(2) Considering any possible change of the venue of listing of the Company’s A Shares within the PRC, the Company proposed to include the change of the venue of listing of the A Shares within the PRC as an additional matter under the Authorizations Concerning the A Share Offering.

The amended Authorizations Concerning the A Share Offering is set out in Appendix II to this circular.

3. PROPOSAL ON THE DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

According to relevant PRC regulatory requirements, such as the Opinions of the General Office of the State Council on Further Strengthening the Protection of Small and Medium Investors’ Legitimate Interests in Capital Market （《國務院辦公廳關於進一步加强資本市場中小投資者合法權益保護工作的意見》）(Guo Ban Fa [2013] No. 110), the Several Opinions of the State Council on Further Promoting the Healthy Development of Capital Market （《國務院關於進一步促進資本市場健康發展的若干意見》）(Guo Fa [2014] No. 17) and the Guiding Opinions on Matters Relating to the Dilution of Current Returns As a Result of Initial Public Offering, Refinancing and Major Asset Restructuring （《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》）(CSRC Announcement [2015] No. 31) published by the CSRC, in order to proceed with the A Share Offering, the Company shall make an analysis on the effects of the A Share Offering on current returns and formulate relevant remedial measures to be adopted. As such, the Board passed at a Board meeting held on 15 January 2016 the proposal on the dilution of current returns as a result of the A Share Offering and the remedial measures to be adopted, which is now submitted for Shareholders’ approval.

The full text of the proposal on the dilution of current returns as a result of the A Share Offering and the remedial measures to be adopted is set out in Appendix III to this circular.

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LETTER FROM THE BOARD

4. CONNECTED TRANSACTIONS WITH BANK OF TIANJIN FOR THE YEAR 2015

The Company has conducted a spot trading transaction and a number of dealer-quoted bond repurchase transactions with Bank of Tianjin during the period from 29 June 2015 to 11 December 2015. As Mr. Feng Heping, a supervisor of the Company, also serves as an independent director of Bank of Tianjin, Bank of Tianjin has become a connected person of the Company under the Administrative Measures for Connected Transactions of the Company. However, Bank of Tianjin is not a connected person of the Company under the Listing Rules. Accordingly, the above transactions constitute connected transactions under the Administrative Measures for Connected Transactions of the Company but not connected transactions of the Company under the Listing Rules. As at 11 December 2015, the total transaction amount between the Company and Bank of Tianjin has exceeded RMB30,000,000, representing more than 5% of the absolute value of the latest audited net asset of the Company. Therefore, in accordance with the Administrative Measures for Connected Transactions of the Company, the above transactions shall be submitted to the Shareholders’ meeting of the Company for review and ratification.

4.1 Basic information of transactions

On 30 July 2015, the Company (as bond purchaser) conducted a spot trading transaction with Bank of Tianjin (as bond vendor) at a net price of RMB100.6692 per unit for a transaction volume of 10,000,000 units, amounting to a total of RMB10,080,300. In addition, during the period from 29 June 2015 to 11 December 2015, the Company (as financing receiver) has conducted 37 dealer-quoted bond repurchase transactions with Bank of Tianjin (as financing provider), with a total transaction amount of RMB7,946,344,000.

4.2 Type of transactions

As the Company and Bank of Tianjin are both members of the inter-bank market and spot trading transactions and dealer-quoted bond repurchase transactions are standardized businesses, the Company did not enter into any transaction agreement with Bank of Tianjin for the above transactions. Subject to the principle of fair pricing, the above transactions between the Company and Bank of Tianjin are conducted through system matching by third party monetary intermediaries.

4.3 Pricing of transactions

Market-oriented quotation and pricing are adopted in the spot trading transaction and dealer-quoted bond repurchase transactions between the Company and Bank of Tianjin.

The price of the spot trading transaction shall be determined based on an arm’s length negotiation in accordance with the Implementing Rules for the Operation of Bond Investment Business in the Inter-Bank Market （《銀行間市場債券投資業務操作實施細則》）of the Company, which means that the deviation between the trading price and the China bond valuation (the valuation of the previous date) shall not exceed 1%; if the

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LETTER FROM THE BOARD

deviation exceeds 1%, it shall be reported to the risk management department in writing; and any deviation exceeding 2% shall be prohibited. In principle, restriction is imposed only on “sell low, buy high” but not on “buy low, sell high”.

Moreover, the price of dealer-quoted bond repurchase transactions (interest rate) shall be determined based on an arm’s length negotiation in accordance with the Implementing Rules for the Operation of Bond Investment Business in the Inter-bank Market （《銀行間市場債券投資業務操作實施細則》）of the Company. Generally, the price shall be determined by reference to the weighted average price of repurchased products with the same duration during the period from 10:30 a.m. to 11:00 a.m. on the transaction day. If there is a liquidity strain in the market on that day, or such day is at the end of a quarter or a year or during holidays, the price may fluctuate along with market changes and shall be determined by both parties through negotiation. This is a common way of pricing adopted in the market.

In conclusion, the price of the spot trading transaction and dealer-quoted bond repurchase transactions between the Company and Bank of Tianjin will be determined at the fair price of the market and based on an arm’s length principle. There is no transfer of benefits, no improper influence on market price and no issue which affects the legitimate interests of the Company and its non-connected Shareholders.

5. CONNECTED TRANSACTIONS WITH BANK OF TIANJIN FOR THE YEAR 2016

The Company intends to continue to conduct dealer-quoted bond repurchase transactions with Bank of Tianjin in 2016. As Mr. Feng Heping, a supervisor of the Company, also serves as an independent director of Bank of Tianjin, Bank of Tianjin has become a connected person of the Company under the Administrative Measures for Connected Transactions of the Company. However, Bank of Tianjin is not a connected person of the Company under the Listing Rules. Accordingly, the above transactions will constitute connected transactions under the Administrative Measures for Connected Transactions of the Company but not connected transactions of the Company under the Listing Rules.

5.1 Necessity and type of transactions

Bank of Tianjin is a banking financial institution principally engaged in the provision of financing in the national inter-bank bond market. Bank of Tianjin requires the bonds under dealer-quoted bond repurchase transactions to be the bonds with a credit bond rating of AA+ or above. The rating of the Company’s bonds meets such requirement, and Bank of Tianjin has therefore become a key trading counter-party of the Company in its financing business. In 2015, the size of dealer-quoted bond repurchase transactions between the Company and Bank of Tianjin amounted to RMB11.8 billion (including the amount of transactions conducted between the parties before Bank of Tianjin became a connected person of the Company).

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LETTER FROM THE BOARD

5.2 Estimated transaction amount and basis of the estimation

The Company estimates that the total transaction amount of the dealer-quoted bond repurchase transactions between the Company and Bank of Tianjin in 2016 will not exceed RMB85 billion.

According to the Company’s financial plan, it is estimated that the size of bond transactions of the Company in the inter-bank market for the whole year of 2016 will be RMB50 billion and the size of dealer-quoted bond repurchase (financing) transactions will be approximately RMB450 billion (including RMB80 billion for the purpose of liquidity management estimated by the Company’s finance department). The Company estimates that the size of dealer-quoted bond repurchase transactions between the Company and Bank of Tianjin will represent 18% of the total size of the financing transactions, as a result of which, the amount of connected transactions between the Company and Bank of Tianjin will not exceed RMB85 billion.

5.3 Pricing of transaction

The price of dealer-quoted bond repurchase transactions shall be determined based on an arm’s length negotiation in accordance with the Implementing Rules for the Operation of Bond Investment Business in the Inter-Bank Market （《銀行間市場債券投資業務操作實施細則》） of the Company. Generally, the price shall be determined by reference to the weighted average price of repurchased products with the same duration on the transaction day. If there is a liquidity strain in the market on that day, or such day is at the end of a quarter or a year or during holidays, the price may fluctuate along with market changes and shall be determined by both parties through negotiation. This is a common way of pricing adopted in the market.

Therefore, the dealer-quoted bond repurchase transactions between the Company and Bank of Tianjin will not affect the legitimate interests of the Company and its non-connected Shareholders.

6. CONNECTED TRANSACTIONS WITH CHINA INVESTMENT SECURITIES FOR THE YEAR 2016

The Company intends to conduct bond investment business with China Investment Securities in 2016. As Mr. Zhang Jinghua, a Director of the Company, served as a director of China Investment Securities and ceased to be its director for less than 12 months, China Investment Securities has become a connected person of the Company under the Administrative Measures for Connected Transactions of the Company. However, China Investment Securities is not a connected person of the Company under the Listing Rules. Accordingly, the above transactions constitute connected transactions under the Administrative Measures for Connected Transactions of the Company but not connected transactions of the Company under the Listing Rules.

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LETTER FROM THE BOARD

6.1 Necessity and type of transactions

China Investment Securities is a trading member of the national inter-bank market with strong capital capability. It is a relatively active non-banking financial institution in the primary and secondary bond markets, and the size of bonds underwritten by it accounts for a certain percentage in the market, which can satisfy the Company’s investment needs for additional bonds through the primary and secondary bond markets.

6.2 Estimated transaction amount and basis of the estimation

The Company estimates that the total amount of connected transactions of bond investment business between the Company and China Investment Securities in 2016 will not exceed RMB5 billion.

For the primary market, according to the latest ranking of bond underwriters, the bonds underwritten by China Investment Securities for the year of 2014 amounted to RMB12.53 billion. Having considered the growth spurt of bond offerings in recent years, it is conservatively estimated that the Company will subscribe for approximately 20% of the bonds underwritten by China Investment Securities each time. On such basis, the Company estimates that the subscription amount in the primary market for the year of 2016 will reach RMB2.5 billion. For the secondary market, the total transaction amount of the inter-bank bond market for the year of 2015 was RMB618 trillion, of which the amount of spot trading transactions was RMB86.7 trillion. Having considered that the Company intends to strengthen bond transactions in the secondary market, and assuming a transaction amount of RMB0.2 billion per month between the Company and China Investment Securities, the estimated transaction amount for the year of 2016 will reach RMB2.5 billion. Hence, the Company estimates that the total amount of connected transaction of bond investment business between the Company and China Investment Securities will not exceed RMB5 billion for the year of 2016.

6.3 Pricing of transactions

The price of bond transactions shall be determined based on an arm’s length negotiation in accordance with the Implementing Rules for the Operation of Bond Investment Business in the Inter-Bank Market （《銀行間市場債券投資業務操作實施細則》） of the Company, which means that the deviation between the trading price and the China bond valuation (the valuation of the previous day) shall not exceed 1%; if the deviation exceeds 1%, it shall be reported to the risk management department in writing; and any deviation exceeding 2% shall be prohibited. In principle, restriction is imposed only on “sell low, buy high” but not on “buy low, sell high”.

The Company’s bond subscription in the primary market is conducted through public tender and bidding in the market, which is a market-oriented pricing mechanism.

Therefore, the bond investment business between the Company and China Investment Securities will not affect the legitimate interests of the Company and its non-connected Shareholders.

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LETTER FROM THE BOARD

EGM, DOMESTIC SHARE CLASS MEETING AND H SHARE CLASS MEETING

The forms of proxy and the reply slips of the EGM, the Domestic Share Class Meeting and the H Share Class Meeting are enclosed.

VOTING BY POLL

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of the Shareholders at the Shareholders’ general meeting must be taken by poll. As such, the chairman of the meetings will exercise his power under the Articles of Association to demand a poll for all resolutions proposed at the EGM, the Domestic Share Class Meeting and the H Share Class Meeting.

RECOMMENDATION

The Board considers that all resolutions proposed at the EGM, the Domestic Share Class Meeting and the H Share Class Meeting are in the interests of the Company and its Shareholders as a whole. As such, the Board recommends you to vote in favour of all resolutions proposed at those meetings.

ADDITIONAL INFORMATION

Your attention is drawn to the other information set out in the Appendices to this circular.

The A Share Offering may or may not proceed to completion. Shareholders and potential investors are advised to exercise caution in dealing in the securities of the Company.

By order of the Board China Galaxy Securities Co., Ltd. Chen Youan Chairman

4 February 2016

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 06881)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the First Extraordinary General Meeting of 2016 of China Galaxy Securities Co., Ltd. (the “ Company ”) will be held at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 9:30 a.m. for the following purposes. Unless the context otherwise requires, expressions used in this notice shall have the same meaning as those defined in the circular of the Company dated 4 February 2016.

SPECIAL RESOLUTIONS

To consider and approve the amendments to the A Share Offering Plan and the extension of its validity period
To consider and approve the amendments to the Authorizations Concerning the A Share Offering and the extension of its validity period
To consider and approve the proposal on the dilution of current returns as a result of the A Share Offering and the remedial measures to be adopted

ORDINARY RESOLUTIONS

To consider and ratify the connected transactions with Bank of Tianjin for the year 2015
To consider and approve the connected transactions with Bank of Tianjin for the year 2016
To consider and approve the connected transactions with China Investment Securities for the year 2016

By order of the Board China Galaxy Securities Co., Ltd. Chen Youan Chairman

Beijing, the PRC, 4 February 2016

Notes:

Any shareholder entitled to attend and vote at the EGM convened by the above notice is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a shareholder of the Company.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

In order to be valid, the form of proxy together with the notarized power of attorney or other documents of authorization, if any, must be completed and returned to the Office of the Board of Directors of the Company (for holders of Domestic Shares) or the H Share registrar of the Company, Computershare Hong Kong Investor Services Limited (for holders of H Shares), not less than 24 hours before the time appointed for holding the EGM or any adjournment thereof. Computershare Hong Kong Investor Services Limited is located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong. Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the EGM or any adjournment thereof should he/she so wish.
Domestic shareholders whose names appear in the register of domestic shareholders of the Company at 4:30 p.m. on Friday, 19 February 2016 shall be entitled to attend the EGM.
The H Share register of members of the Company will be closed, for the purpose of determining the entitlement of holders of H Shares to attend the EGM, from Monday, 22 February 2016 to Thursday, 24 March 2016 (both days inclusive), during which period no transfer of H Shares will be registered. In order to attend the EGM, all share certificates, together with the instruments of transfers, must be lodged for registration with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited (for holders of H Shares) at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, not later than 4:30 p.m. on Friday, 19 February 2016. Holders of H Shares who are registered with Computershare Hong Kong Investor Services Limited on or before the aforementioned date are entitled to attend the EGM.
Where there are joint holders of any shares, the one whose name stands first in the register of members shall be entitled to attend and vote at the EGM in respect of such shares.
Shareholders of the Company intending to attend the EGM in person or by their proxies should return the reply slip for attending the EGM in person or by post to the Office of the Board of Directors of the Company (for holders of Domestic Shares) or the Company’s H Share registrar, Computershare Hong Kong Investors Services Limited (for holders of H Shares) on or before Thursday, 3 March 2016. The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
Shareholder or his proxy shall produce proof of identity when attending the EGM:
(1) Legal representatives of legal person shareholders who attend the meeting shall produce their own identity cards and effective proof of their capacity as legal representatives. Proxies of legal person shareholders shall produce their own identity cards and the form of proxy duly signed by the legal representatives or the board of directors or other governing body of the legal person shareholders according to law.
(2) Individual shareholders who attend the meeting in person shall produce their identity cards or other effective document or proof of identity and stock account cards. Proxies of individual shareholders shall produce effective proof of identity and form of proxy.
The EGM is expected to be held for less than half a day. Shareholders who attend the meeting in person or by proxy shall bear their own travelling and accommodation expenses.
The Office of the Board of Directors of the Company is located at Tower C, Corporate Square, 35 Finance Street, Xicheng District, Beijing, the PRC

Tel. no.: 86 (10) 6656 8888 Fax no.: 86 (10) 6656 8640

In case of any discrepancy between the Chinese version and the English version of this notice, the Chinese version shall prevail.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

As at the date of this notice, the executive Directors of the Company are Mr. CHEN Youan, Mr. GU Weiguo and Mr. WU Chengming; the non-executive Directors are Mr. DU Ping, Mr. SHI Xun, Mr. ZHANG Jinghua and Mr. LI Chaoyang; and the independent non-executive Directors are Mr. LIU Feng, Mr. LUO Lin, Mr. WU Yuwu and Mr. CHI Fulin.

– 15 –

NOTICE OF DOMESTIC SHARE CLASS MEETING

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(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 06881)

NOTICE OF DOMESTIC SHARE CLASS MEETING

NOTICE IS HEREBY GIVEN that the Domestic Share Class Meeting of China Galaxy Securities Co., Ltd. (the “ Company ”) will be held at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 10:30 a.m. or immediately after the conclusion of the First Extraordinary General Meeting of 2016 or any adjournment thereof (whichever is the later) for the following purposes. Unless the context otherwise requires, expressions used in this notice shall have the same meaning as those defined in the circular of the Company dated 4 February 2016.

SPECIAL RESOLUTIONS

To consider and approve the amendments to the A Share Offering Plan and the extension of its validity period
To consider and approve the amendments to the Authorizations Concerning the A Share Offering and the extension of its validity period
To consider and approve the proposal on the dilution of current returns as a result of the A Share Offering and the remedial measures to be adopted

By order of the Board China Galaxy Securities Co., Ltd. Chen Youan Chairman

Beijing, the PRC, 4 February 2016

Notes:

Any shareholder entitled to attend and vote at the Domestic Share Class Meeting convened by the above notice is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a shareholder of the Company.
In order to be valid, the form of proxy together with the notarized power of attorney or other documents of authorization, if any, must be completed and returned to the Office of the Board of Directors of the Company, not less than 24 hours before the time appointed for holding the Domestic Share Class Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the Domestic Share Class Meeting or any adjournment thereof should he/she so wish.
Domestic shareholders whose names appear in the register of domestic shareholders of the Company at 4:30 p.m. on Friday, 19 February 2016 shall be entitled to attend the Domestic Share Class Meeting.
Where there are joint holders of any shares, the one whose name stands first in the register of members shall be entitled to attend and vote at the Domestic Share Class Meeting in respect of such shares.

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NOTICE OF DOMESTIC SHARE CLASS MEETING

Shareholders of the Company intending to attend the Domestic Share Class Meeting in person or by their proxies should return the reply slip for attending the Domestic Share Class Meeting in person or by post to the Office of the Board of Directors of the Company on or before Thursday, 3 March 2016.
Shareholder or his proxy shall produce proof of identity when attending the Domestic Share Class Meeting:
(1) Legal representatives of legal person shareholders who attend the meeting shall produce their own identity cards and effective proof of their capacity as legal representatives. Proxies of legal person shareholders shall produce their own identity cards and the form of proxy duly signed by the legal representatives or the board of directors or other governing body of the legal person shareholders according to law.
(2) Individual shareholders who attend the meeting in person shall produce their identity cards or other effective document or proof of identity and stock account cards. Proxies of individual shareholders shall produce effective proof of identity and form of proxy.
The Domestic Share Class Meeting is expected to be held for less than half a day. Shareholders who attend the meeting in person or by proxy shall bear their own travelling and accommodation expenses.
The Office of the Board of Directors of the Company is located at Tower C, Corporate Square, 35 Finance Street, Xicheng District, Beijing, the PRC

Tel. no.: 86 (10) 6656 8888 Fax no.: 86 (10) 6656 8640

In case of any discrepancy between the Chinese version and the English version of this notice, the Chinese version shall prevail.

– 17 –

NOTICE OF H SHARE CLASS MEETING

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(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 06881)

NOTICE OF H SHARE CLASS MEETING

NOTICE IS HEREBY GIVEN that the H Share Class Meeting of China Galaxy Securities Co., Ltd. (the “ Company ”) will be held at Donghua Hall, 11th Floor, Beijing Minzu Hotel, No. 51 Fuxingmen Inner Street, Xicheng District, Beijing, the PRC, on Thursday, 24 March 2016 at 11:10 a.m. or immediately after the conclusion of the Domestic Share Class Meeting or any adjournment thereof (whichever is the later) for the following purposes. Unless the context otherwise requires, expressions used in this notice shall have the same meaning as those defined in the circular of the Company dated 4 February 2016.

SPECIAL RESOLUTIONS

To consider and approve the amendments to the A Share Offering Plan and the extension of its validity period
To consider and approve the amendments to the Authorizations Concerning the A Share Offering and the extension of its validity period
To consider and approve the proposal on the dilution of current returns as a result of the A Share Offering and the remedial measures to be adopted

By order of the Board China Galaxy Securities Co., Ltd. Chen Youan Chairman

Beijing, the PRC, 4 February 2016

Notes:

Any shareholder entitled to attend and vote at the H Share Class Meeting convened by the above notice is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a shareholder of the Company.
In order to be valid, the form of proxy together with the notarized power of attorney or other documents of authorization, if any, must be completed and returned to the H Share registrar of the Company, Computershare Hong Kong Investor Services Limited, not less than 24 hours before the time appointed for holding the H Share Class Meeting or any adjournment thereof. Computershare Hong Kong Investor Services Limited is located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong. Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the H Share Class Meeting or any adjournment thereof should he/she so wish.
The H Share register of members of the Company will be closed, for the purpose of determining the entitlement of holders of H Shares to attend the H Share Class Meeting, from Monday, 22 February 2016 to Thursday, 24 March 2016 (both days inclusive), during which period no transfer of H Shares will be registered. In order to attend the H Share Class Meeting, all share certificates, together with the instruments

– 18 –

NOTICE OF H SHARE CLASS MEETING

of transfers, must be lodged for registration with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, not later than 4:30 p.m. on Friday, 19 February 2016. Holders of H Shares who are registered with Computershare Hong Kong Investor Services Limited on or before the aforementioned date are entitled to attend the H Share Class Meeting.

Where there are joint holders of any shares, the one whose name stands first in the register of members shall be entitled to attend and vote at the H Share Class Meeting in respect of such shares.
Shareholders of the Company intending to attend the H Share Class Meeting in person or by their proxies should return the reply slip for attending the H Share Class Meeting in person or by post to the Company’s H Share registrar, Computershare Hong Kong Investors Services Limited (for holders of H Shares) on or before Thursday, 3 March 2016. The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
Shareholder or his proxy shall produce proof of identity when attending the H Share Class Meeting:
(1) Legal representatives of legal person shareholders who attend the meeting shall produce their own identity cards and effective proof of their capacity as legal representatives. Proxies of legal person shareholders shall produce their own identity cards and the form of proxy duly signed by the legal representatives or the board of directors or other governing body of the legal person shareholders according to law.
(2) Individual shareholders who attend the meeting in person shall produce their identity cards or other effective document or proof of identity and stock account cards. Proxies of individual shareholders shall produce effective proof of identity and form of proxy.
The H Share Class Meeting is expected to be held for less than half a day. Shareholders who attend the meeting in person or by proxy shall bear their own travelling and accommodation expenses.
In case of any discrepancy between the Chinese version and the English version of this notice, the Chinese version shall prevail.

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AMENDED A SHARE OFFERING PLAN

APPENDIX I

The A Share Offering plan has been approved at the 2014 first extraordinary general meeting, the Domestic Share class meeting and the H Share class meeting held on 25 April 2014. The amended A Share Offering Plan has been approved at the Board meeting held on 15 January 2016. The full text of the amended A Share Offering Plan is set out as follows:

1. Place of listing

Shanghai Stock Exchange.

2. Type of securities to be issued and nominal value

A Shares of RMB1.00 each.

3. Proportion and structure of issue

The numbers of A Shares to be issued will be not more than 1,693,510,473 shares ~~(including any shares that may be issued under the over-allotment option)~~ and will not exceed ~~18.35%~~ 15.08% of the total share capital of the Company immediately after the A Share Offering. The ~~total~~ size of actual issue ~~, over-allotment~~ and proportion of allotment will be determined by the Board pursuant to the authorizations from the general meeting of the Company, based on the capital requirements of the Company, communication with the regulatory authorities and the prevailing market conditions at the time of the issuance.

Subject to compliance with laws, regulations and regulatory requirements, the Company may implement strategic allotment under the A Share Offering. According to the business cooperation and scale of financing needs, the Company intends to allot some of the shares to investors that satisfy the requirements of the laws and regulations and meet the development and strategic needs of the Company. The detailed proportion of allotment will be determined based on the requirements of the laws and regulations and subject to market conditions.

4. Target subscribers

Target subscribers of A Shares are qualified natural persons and institutional investors.

If any of the aforesaid persons are connected persons of the Company, the Company will take all necessary measures to comply with the listing rules of the jurisdictions where the shares of the Company are listed.

5. Method of pricing

Taking into account the actual situation of the capital markets and of the Company at the time of the issuance of the A Shares, the issue price will be fixed through making enquiries with off-line investors or directly fixed through negotiation between the lead underwriter(s) and the Company, or by any other legal and feasible methods.

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AMENDED A SHARE OFFERING PLAN

APPENDIX I

The issue price of the A Shares will be determined on the basis of the conditions of domestic and overseas securities markets at the time of the A Share Offering, taking into account the interests of all Shareholders as a whole, and in accordance with relevant PRC laws and regulations and the listing rules of the ~~Shanghai~~ stock exchange. Upon receiving the approval of the A Share Offering from the CSRC, the issue price range will be determined by making preliminary price consultations with qualified price consultation participants, and the issue price will be determined within the issue price range based on the cumulative bidding price consultations (or by other means recognized by the CSRC); alternatively, the issue price will be directly fixed through negotiation between the lead underwriter(s) and the Company according to the conditions of domestic and overseas securities markets at the time of the A Share Offering, or by any other legal and feasible methods.

6. Method of issue

It is proposed that the A Share Offering will be conducted by issuance of new shares.

7. Use of proceeds

The proceeds raised from the A Share Offering, after deduction of the issue expenses, will all be used for strengthening the capital base of the Company and replenishing the working capital of the Company.

8. Transfer of state-owned shares

In accordance with the Implementing Measures for the Transfer of Some State-owned Shares from the Domestic Securities Market to the National Social Security Fund （《境內證券市場轉持部分國有股充實全國社會保障基金實施辦法》） and the relevant regulations, the state-owned shareholders of the Company shall fulfill their obligations to transfer 10% of the A Shares actually issued by the Company to the National Social Security Fund at the time of the A Share Offering. The detailed scheme of transfer will be determined and implemented pursuant to the approval from the relevant authorities of the PRC.

9. Conversion into a joint stock company with limited liability with domestic and overseas listed shares

According to the A Share Offering Plan and taking into account the H Shares in issue, the Company will apply for the conversion into a joint stock company with limited liability with domestic and overseas listed shares.

10. Validity of the resolutions

The A Share Offering Plan shall be valid for 12 months ~~from the date of passing of such resolution at the general meeting and the class meetings~~ . If the Company has obtained the approval documents from the CSRC in relation to the A Share Offering during the validity period, the validity period will be automatically extended to the date of issue and listing of the A Shares of the Company.

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AMENDED AUTHORIZATIONS CONCERNING THE A SHARE OFFERING

APPENDIX II

The Authorizations Concerning the A Share Offering have been approved at the 2014 first extraordinary general meeting, the Domestic Share class meeting and the H Share class meeting held on 25 April 2014. The amended Authorizations Concerning the A Share Offering have been approved at the Board meeting held on 15 January 2016. The full text of the amended Authorizations Concerning the A Share Offering is set out as follows:

For the purposes of the A Share Offering, a proposal will be put forward to the general meeting to authorize the Board, or its delegation to the Chairman (who may delegate to other directors), to deal with the relevant matters concerning the A Share Offering, including but not limited to:

Amending and improving specific schemes and measures of the A Share Offering and organizing their implementation based on the advices from the relevant government agencies and regulatory authorities and subject to market environment, and to the extent authorized by the general meeting, determining (including but not limited to) specific offering scale, number of shares transferred from state-owned shares, offering price (including price range and final price), time, method and target subscribers of the offering, strategic allotment ~~and over allotment~~ and proportion of allotment, plan for use of proceeds, listing place and other matters relating to the implementation of the schemes concerning offering and listing.
Drafting, modifying and executing the applications, memoranda, relevant reports or materials relating to the A Share Offering and submitting the same to government agencies and regulatory authorities in connection with the A Share Offering (including but not limited to the Ministry of Finance of the PRC, CSRC, ~~Shanghai~~ stock exchange, Beijing Regulatory Bureau of the CSRC, National Council for Social Security Fund, China Securities Depository, Clearing Co., Ltd. and its relevant branch companies), handling the procedures relating to the A Share Offering including review and examination, registration, filing, approval and consent and issuing statements and undertakings relating to the A Share Offering, and performing such acts as it deems necessary, expedient or appropriate with respect to the A Share Offering.
Preparing, amending, signing, submitting and disclosing the prospectus; signing, amending, implementing, suspending or terminating the agreements, contracts and documents relating to the A Share Offering; engaging sponsors (lead underwriters), legal counsels, auditors, receiving banks and other institutions relating to the A Share Offering.
Authorizing the Board to amend the provisions of the Articles of Association with respect to the A Share Offering or amending the same in accordance with the requirements of securities regulatory authorities, stock exchanges and securities depository and clearing institutions; after completion of the A Share Offering, handling approval, change, filing and other matters in respect of the amendments

– 22 –

AMENDED AUTHORIZATIONS CONCERNING THE A SHARE OFFERING

APPENDIX II

to the Articles of Association and the change of the registered capital with securities regulatory authorities, administrations for industry and commerce, securities registration authorities and other relevant government departments.

Any amendments to the Articles of Association to be made by the Board under the authorization of the general meeting shall be subject to the examination and approval procedures at the general meeting immediately following the amendments.

Should there be any new provisions and polices issued by the state and securities regulatory departments with respect to the initial public offering and listing, to the extent authorized by the general meeting, authorizing the Board to make corresponding amendments to the A Share Offering Plan in accordance with such new provisions and polices.
Authorizing relevant persons to handle matters relating to the A Share Offering as and when needed.
All other matters relating to the A Share Offering.

The authorizations shall be valid for 12 months ~~from the date of passing of such authorisations at the general meeting and the class meetings~~ . If the Company has obtained the approval documents from the CSRC in relation to the A Share Offering during the validity period, the validity period will be automatically extended to the date of issue and listing of the A Shares of the Company.

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APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

I. The potential risk of dilution of current returns of the Company as a result of the A Share Offering

Based on the announcement of the Company in relation to the monthly financial information in 2015, the unaudited and unconsolidated net profit of the Company for 2015 was RMB9.606 billion according to the China Accounting Standards for Business Enterprises. In the event that the Company is to issue A Shares in 2016, its share capital would expand instantly, and any fund raised as a result thereof might not be able to create sufficient benefits during the year, and taking into careful consideration the development of the industry, might result in the Company being subject to the risk of dilution of its current returns.

II. Measures to be adopted by the Company for any dilution of current returns as a result of the A Share Offering

In view of any effect of the A Share Offering on the current returns of the Shareholders and for the purposes of consistently implementing the Several Opinions of the State Council on Further Promoting the Healthy Development of Capital Market （《國務院關於進一步促進資本市場健康發展的若干意見》）, the Opinions of the General Office of the State Council on Further Strengthening the Protection of Small and Medium Investors’ Legitimate Interests in Capital Market （《國務院辦公廳關於進一步加强資本市場中小投資者合法權益保護工作的意見》） and the Guiding Opinions on Matters Relating to the Dilution of Current Returns As a Result of Initial Public Offering, Refinancing and Major Asset Restructuring （《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》）published by the CSRC, safeguarding the interests of Shareholders of the Company and improving an investment return mechanism of the Company, the Company undertakes that it will use any raised funds from the A Share Offering in a reasonable way and strengthen its ability of sustainable development through the following measures to enhance Shareholders’ value in medium and long run so as to compensate for any effect of the A Share Offering on the current returns of the Shareholders.

(1) Major risks faced by current principal businesses of the Company and the measures for improvement

The Company is principally engaged in the provision of comprehensive securities services for its customers, including brokerage, sales and trading, investment banking and investment management. At present, all business operations of the Company are in good condition with stable development.

Major risks and measures for improvement of the brokerage, and sales and trading businesses

Income from the securities brokerage business is a key component of the Company’s business. In recent years, the Company has continuously experienced a rapid growth in its securities brokerage business. The operation of the securities brokerage business is mainly affected by both trading volume and commission

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DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

APPENDIX III

rate. Trading volume is primarily affected by the activity of capital markets. As for commission rate, with the increasingly keen competition in the industry and the rapid development of Internet mobile terminal, the commission rate remained at a low level, and the pressure for the industry competition is relatively great.

It is rather obvious that the margin financing and securities lending business is affected by the development trend of capital markets. When a systematic and significant decline occurs in the securities market, it may give rise to the situation that the proportion of margin deposits provided by customers of the Company in its margin financing and securities lending business would be unable to stay at the minimum requirement level. In particular, during the period of continuous decline in the securities market, chain reaction resulting from the liquidation of positions by customers involving in the margin financing and securities lending business may result in more customers liquidating their positions, which might lead to a significant reduction in the scale of the Company’s margin financing and securities lending business. In addition, where a rapid drop occurs in the capital market, individual customers involving in the margin financing and securities lending business may become insolvency, which might lead to any defaults by such customers and result in credit risks.

Interest income of the Company is mainly derived from deposits placed with commercial banks and non-banking financial institutions, margin financing and securities lending business and financial assets held under resale agreement. The interest income from such businesses is linked to the market’s interest rate. In the case of any drop in the market interest rate, any interest income received by the Company will drop accordingly. Moreover, the Company will pay interests to customers in respect of any deposits to be made on behalf of the customers, and also pay interests in respect of short-term loans, and sale and repurchase transactions. Such interest expenses are also linked to the market interest rate. In the case of any increase in the market interest rate, any interest expenses incurred by the Company will also increase.

In order to stabilize and constantly increase the incomes from the brokerage, and sales and trading business, the Company actively promotes the transformation to the wealth management business, creates a comprehensive financial service platform, focuses on pushing ahead its businesses of margin financing and securities lending, and sale of financial products, and strengthening the business synergy to enhance its customer service ability in full. In order to stabilize the commission rate of customers, the Company will strengthen its management on commissions while re-creating the service brand of “Top of the Wealth” on the basis of customer segment and service segment so as to increase the satisfaction and stickiness of the customer services.

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APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

Major risks and measures of improvement of the investment banking business

The investment banking business of the Company mainly includes the underwriting of equities and debts, and financial advisory businesses. Due to the effect from the capital markets and regulatory systems, fluctuations have occurred in the investment banking business of the Company in recent years but overall, the growth of such business can be maintained. Currently, an access system is adopted for the offering of securities in China. Different approval or registration procedures are required to be completed before any share offerings, bond offerings or flotation on the National Equities Exchange and Quotations for medium and small-sized enterprises (the New OTC Board), and the progress and result of the approval or registration procedures are uncontrollable by the Company, which might result in delay or prohibition of offerings, and thus would have an adverse effect on the investment banking business of the Company, as well as its operating results and financial condition as a whole.

The Company will closely follow up the development of the registration system and further strengthen the risk control of projects quality. Subject to the stringent control of risks, the Company will continue to consolidate and expand its traditional sponsorship and underwriting businesses, stabilize the development of IPO business, actively launch the refinancing business, increase its effort in expanding the merger and acquisition and restructuring business, and explore innovation in transaction and profit model. With the close adherence to new policies of the bond market, the Company will take full advantage of market opportunities to actively adjust its market strategy in order to speed up the innovation of various types of new bonds. While maintaining its market share, the Company will improve the operating results of its bond underwriting business. The Company will continue to strongly develop its listing and market making businesses, and also actively promote the business synergy, with a view to facilitating the development of the entire industry chain for the New OTC Board. Furthermore, the Company will continue to expand innovative businesses such as asset securitization and preference shares, increase reserves for projects, actively explore the matching ability between innovative businesses and private equity, investment, merger and acquisition, etc., thus creating new business and profit growth points for the development of its investment banking business.

Key risks and measures for improvement of the investment management business

The investment management business of the Company comprises assets management and private equity investment. The Company has commenced its investment management business since 2008. Due to the rapid development of scale of entrusted management assets and private equity investment in recent years, its income from the investment management business has been on the rise. The performance of the Company in asset management not only affects the scale

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APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

of its management assets, but is also a key factor for the Company to retain its assets management customers and to seek for new asset management business. Insufficiency of investment types and hedging strategies in the PRC, as well as factors such as market fluctuation, may restrict the ability of the Company to provide a higher and stable return for its customers, which might as a result give rise to a loss of customers and a decrease in income from the investment management business. In addition, the asset management industry is entering a new era of asset management. This will directly trigger a competition in the capabilities of active management, obtaining of quality assets and risk management, and also lead to a deep-level competition in management system, incentive mechanism and attraction of talents, etc.

Besides, factors such as the unfavourable macroeconomic and socio-political environment, fluctuations in the capital markets, and underperformance of the Company in investments when compared with its competitors may also cause a decrease in value of the assets managed by the Company, which might have an adverse effect on the asset management fee and the performance reward received by the Company.

In addition, any investment decision of the Company is made at its sole discretion, which involves its own judgements and assumptions. If an investment decision made by the Company fails to bring in any anticipated benefits or to reduce losses, or any prediction or judgement of the Company fails to align with the actual changes in the market, then the Company may not necessarily obtain the anticipated returns and may even suffer losses from its proprietary business, which might have an adverse effect on the proprietary business of the Company, as well as its operating results and financial condition as a whole.

The Company will continue to build up its investment management business and improve its investment management team in order to establish a professional investment and research management system. It will also delegate its powers properly and enhance the efficiency in decision making in a bid to make quick responses to any market demands in product design, staff deployment and system support, etc. In relation to the expansion of its client base, the Company will actively develop the sale channels of commercial banks while vigorously striving for businesses to be entrusted by institutional customers, thus further broadening the scope of customers for asset management service. Moreover, the Company will reasonably allocate its own funds for products with controllable risks and good income, and increase its rate of return on its own fund while promoting the development of its business.

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APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

(2) Specific measures of the Company for increasing daily operating efficiency, reducing operating costs and enhancing operating results
Continuously promoting the healthy development of business and expanding diversified profit channels

The Company will step up its effort in improving and optimizing the asset structure, enhance the capital allocation efficiency and risk management level, regulate the management and use of raised funds, constantly keep abreast of the development trend of the financial industry, actively seize any opportunities for business innovation while promoting the steady growth of its existing businesses, as well as identify new profit growth points, with a view to enhancing its operating benefits as a whole in the increasingly competitive market. The Company will focus on and allocate its capital to any business with stable operation and management, good return on capital, low capital occupancy and in compliance with the national policy, constantly strengthen capital constraints and return management and establish a well-established and long-term mechanism for capital management in order to achieve an overall and sustainable development of the Company and to increase the mediumand long-term return on the Shareholders’ value.

Regulating the use and management of raised funds

In order to regulate the management and use of raised funds and safeguard the interests of investors, the Company has formulated the Management Measures of Raised Funds of China Galaxy Securities Co., Ltd. （《中國銀河證券股份有限公司募集資金管理辦法》） pursuant to the requirements of applicable laws and regulations and other regulatory documents, such as the Company Law （《公司法》）, the Securities Law （《證券法》）and the Listing Rules, as well as the Articles of Association for making detailed provisions with respect to the deposit of raised funds, their use, changes in their investment and supervision of their use. The Company will strengthen its management of raised funds, use them in a reasonable and effective manner and prevent any risks resulting from the use of raised funds.

Strengthening the operation and management and risk control to improve the operating efficiency and profitability

The Company will further improve the operation and management level and the efficiency in the use of capital, regulate the operation of various businesses, improve and strengthen the investment decision-making procedures, promote and optimize the comprehensive budget management, strengthen the cost control measures, cut down various costs and expenses, strengthen the implementation and supervision of budgets for the purposes of improving the profitability of the Company as a whole. The Company will keep on strengthening the construction of a comprehensive risk management system, constantly improve its risk

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APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

management capability in the aspects of credit risk, market risk, operating risk and liquidity risk, make greater effort in risk prevention and control in key areas, and continue to perform its duties in risk identification, measurement, monitoring, processing and reporting in key areas so as to comprehensively enhance the risk management capability of the Company.

4. Policy to maintain a stable return for shareholders

The Company sets out clearly in the Articles of Association such matters as the policy of cash dividend distribution and cash dividend payment ratio, which stipulates the minimum percentage of profit distribution made by the Company in cash under the normal situation so that investors can expect a steady return. The Company attaches great importance to the protection of the Shareholders’ rights and interests, and will continue to maintain the continuity and stability of its profit distribution policy with an aim to adhere to the principle of creating long-term values for its Shareholders.

(3) Undertakings made by all Directors and senior management of the Company

The Directors and senior management of the Company undertake that they will faithfully and diligently perform their respective duties and safeguard the legitimate rights and interests of the Company and its Shareholders as a whole. They have made the following undertakings to ensure that the remedial measures to be adopted in respect of the dilution of current returns as a result of the A Share Offering of the Company can be performed in a practical manner:

(1) they undertake not to transfer any interests to other units or individuals without consideration or on unfair terms and conditions, nor cause harm to the interests of the Company by other means.
(2) they undertake to place restrictions on duties and consumption activities of the Directors and senior management.
(3) they undertake not to use any assets of the Company for any investment and consumption activities that are not related to their performance of duties.
(4) they undertake to ensure that the remuneration system formulated by the Board or the Nomination and Remuneration Committee is in line with the implementation of the remedial measures to be adopted by the Company.
(5) they undertake to ensure that the conditions for any exercise of stock incentive schemes of the Company (if any) are in line with the implementation of the remedial measures to be adopted by the Company.

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AI assistant

China Galaxy Securities Co., Ltd. — Proxy Solicitation & Information Statement 2016

51069_rns_2016-02-03_dd6819ac-ba7f-4164-a0bd-24d7ee9bd0d3.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PROPOSED AMENDMENTS TO THE A SHARE OFFERING PLAN AND EXTENSION OF ITS VALIDITY PERIOD

AND

NOTICES OF EXTRAORDINARY GENERAL MEETING, DOMESTIC SHARE CLASS MEETING AND H SHARE CLASS MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

The Board of Directors:

PROPOSED AMENDMENTS TO THE A SHARE OFFERING PLAN AND EXTENSION OF ITS VALIDITY PERIOD

INTRODUCTION

LETTER FROM THE BOARD

MATTERS TO BE CONSIDERED AT THE EGM, THE DOMESTIC SHARE CLASS MEETING AND THE H SHARE CLASS MEETING

1. AMENDMENTS TO THE A SHARE OFFERING PLAN AND EXTENSION OF ITS VALIDITY PERIOD

Effects of the A Share Offering on the shareholding structure of the Company

2. AMENDMENTS TO THE AUTHORIZATIONS CONCERNING THE A SHARE OFFERING AND EXTENSION OF ITS VALIDITY PERIOD

LETTER FROM THE BOARD

3. PROPOSAL ON THE DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

LETTER FROM THE BOARD

4. CONNECTED TRANSACTIONS WITH BANK OF TIANJIN FOR THE YEAR 2015

4.1 Basic information of transactions

4.2 Type of transactions

4.3 Pricing of transactions

5. CONNECTED TRANSACTIONS WITH BANK OF TIANJIN FOR THE YEAR 2016

5.1 Necessity and type of transactions

5.2 Estimated transaction amount and basis of the estimation

5.3 Pricing of transaction

6. CONNECTED TRANSACTIONS WITH CHINA INVESTMENT SECURITIES FOR THE YEAR 2016

6.1 Necessity and type of transactions

6.2 Estimated transaction amount and basis of the estimation

6.3 Pricing of transactions

EGM, DOMESTIC SHARE CLASS MEETING AND H SHARE CLASS MEETING

VOTING BY POLL

RECOMMENDATION

ADDITIONAL INFORMATION

NOTICE OF EXTRAORDINARY GENERAL MEETING

SPECIAL RESOLUTIONS

ORDINARY RESOLUTIONS

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE OF DOMESTIC SHARE CLASS MEETING

SPECIAL RESOLUTIONS

By order of the Board China Galaxy Securities Co., Ltd. Chen Youan Chairman

NOTICE OF DOMESTIC SHARE CLASS MEETING

NOTICE OF H SHARE CLASS MEETING

NOTICE OF H SHARE CLASS MEETING

SPECIAL RESOLUTIONS

NOTICE OF H SHARE CLASS MEETING

APPENDIX I

1. Place of listing

2. Type of securities to be issued and nominal value

3. Proportion and structure of issue

4. Target subscribers

5. Method of pricing

APPENDIX I

6. Method of issue

7. Use of proceeds

8. Transfer of state-owned shares

9. Conversion into a joint stock company with limited liability with domestic and overseas listed shares

10. Validity of the resolutions

APPENDIX II

APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

I. The potential risk of dilution of current returns of the Company as a result of the A Share Offering

II. Measures to be adopted by the Company for any dilution of current returns as a result of the A Share Offering

(1) Major risks faced by current principal businesses of the Company and the measures for improvement

APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

APPENDIX III

DILUTION OF CURRENT RETURNS AS A RESULT OF THE A SHARE OFFERING AND THE REMEDIAL MEASURES TO BE ADOPTED

4. Policy to maintain a stable return for shareholders

(3) Undertakings made by all Directors and senior management of the Company

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China Galaxy Securities Co., Ltd. Proxy Solicitation & Information Statement 2016