CITIC Securities Company Limited - Proxy Solicitation & Information Statement 2013

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 CITIC Securities Company Limited , you should at once hand this circular together with the enclosed proxy form and reply slip for the EGM to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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 limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 6030)

(1) CONTINUING CONNECTED TRANSACTIONS: RENEWAL OF THE RELEVANT ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS;

(2) PROPOSED TRANSFER OF EQUITY INTERESTS IN SUBSIDIARIES FOR THE LAUNCHING OF DESIGNATED INNOVATIVE FINANCIAL BUSINESS;

(3) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION;

(4) PROPOSED MANDATE TO REAUTHORIZE THE COMPANY TO ISSUE COMMERCIAL PAPERS; AND

NOTICE OF THE EGM

Independent fi nancial adviser to the Independent Board Committee and Independent Shareholders

SOMERLEY LIMITED

A notice convening the EGM to be held at Beijing Room, 3/F, Kempinski Hotel Beijing Lufthansa Center, 50 Liangmaqiao Road, Chaoyang District, Beijing, the PRC at 9:30 a.m. on Friday, 29 November 2013 is set out on pages 59 to 62 of this circular.

Whether or not you are able to attend the EGM, you are requested to read the notice of the EGM carefully and complete and return the accompanying proxy form in accordance with the instructions printed thereon. For H Shareholders, the proxy form should be returned in person or by post not less than 24 hours before the time appointed for the EGM or any adjournment thereof to the H Share registrar of the Company, Computershare Hong Kong Investor Services Limited; and for A Shareholders, details relating to the procedures for attending the EGM shall be referred to in the announcement published by the Company on the Shanghai Stock Exchange. Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof in person if you so wish.

If you wish to attend the EGM either in person or by proxy, you are required to complete and return the reply slip for the meeting to the board of the directors’ offi ce of the Company on or before Friday, 8 November 2013.

14 October 2013

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . .	41
LETTER FROM SOMERLEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
APPENDIX I — GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56
NOTICE OF THE EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59

— i —

DEFINITIONS

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

“A Share(s)”	the domestic share(s) in the ordinary share capital of the Company
	with a nominal value of RMB1.00 each which are listed on the
	Shanghai Stock Exchange and traded in RMB (stock code: 600030)
“A Shareholder(s)”	holder(s) of A Shares
“Articles of Association”	the Articles of Association of the Company and its appendices
“Beijing CITIC Tower”	2nd to 22nd Floors, Beijing CITIC Securities Tower, located at
	Tower 4, No. 48 Liangmaqiao Road, Chaoyang District, Beijing
“Board”	the board of Directors
“CITIC Group”	CITIC Group Corporation
“Company”	CITIC Securities Company Limited, a joint stock limited company
	incorporated in the PRC with limited liability, whose H Shares
	and A Shares are listed on the Hong Kong Stock Exchange and the
	Shanghai Stock Exchange, respectively
“CSRC”	China Securities Regulatory Commission
“Director(s)”	the director(s) of the Company
“EGM”	the 2013 Third Extraordinary General Meeting of the Company to
	be held at Beijing Room, 3/F, Kempinski Hotel Beijing Lufthansa
	Center, 50 Liangmaqiao Road, Chaoyang District, Beijing, the
	PRC at 9:30 a.m. on Friday, 29 November 2013
“Existing Framework Agreements”	(i) the Existing Securities and Financial Products Transactions and
	Services Framework Agreement; (ii) the Existing Miscellaneous
	Services Framework Agreement; and (iii) the Existing Property
	Leasing Framework Agreement
“Existing Miscellaneous Services	the miscellaneous services framework agreement dated 23
Framework Agreement”	September 2011 entered into between the Company and CITIC
	Group for a term of three years expiring on 22 September 2014
“Existing Property Leasing	the property leasing framework agreement dated 23 September
Framework Agreement”	2011 entered into between the Company and CITIC Group for a
	term of 10 years expiring on 22 September 2021
“Existing Securities and Financial	the securities and f nancial products transactions and services
Products Transactions and Services	framework agreement dated 23 September 2011 entered into
Framework Agreement”	between the Company and CITIC Group for a term of three years
	expiring on 22 September 2014

— 1 —

DEFINITIONS

“Framework Agreements”
(i) the Securities and Financial Products Transactions and Services Framework Agreement; (ii) the Miscellaneous Services Framework Agreement; and (iii) the Property Leasing Framework Agreement
“Group”

the Company and its subsidiaries

“GoldStone Fund” CITIC GoldStone Fund Management Co., Ltd. (中信金石基金管理有限公司), a wholly-owned subsidiary of GoldStone Investment Co., Ltd. (金石投資有限公司), a wholly-owned subsidiary of the Company
“H Share(s)” the overseas-listed foreign invested share(s) in the ordinary share capital of the Company with a nominal value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars (stock code: 6030)
“H Shareholder(s)” holder(s) of H Shares
“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

“Independent Board Committee”
an independent committee of the Board comprising all independent non-executive Directors, namely, Mr. WU Xiaoqiu, Mr. LEE Kong Wai, Conway, Mr. RAO Geping and Mr. WEI Benhua to advise the Independent Shareholders on the proposed terms of the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps for the mutual provision of Securities and Financial Services
“Independent Shareholders” Shareholders (other than CITIC Group and its associates) who are not required to abstain from voting on the resolutions to be proposed at the EGM to be convened for the purposes of, among other things, approving the proposed terms of the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps for the mutual provision of Securities and Financial Services
“Internal Restructuring”
the transfer of the property ownership and land use rights of Beijing CITICS Tower and Shenzhen CITICS Tower to Tianjin Jingzheng and Tianjin Shenzheng by way of increasing capital contribution
“Latest Practicable Date”
11 October 2013, being the latest practicable date of ascertaining certain information contained in this circular prior to its publication

— 2 —

DEFINITIONS

“Maximum Daily Balance of the maximum daily balance of deposits placed by the Group and its Deposits” clients with the banking subsidiaries of CITIC Group “Miscellaneous Services Framework the miscellaneous services framework agreement to be entered into Agreement” between the Company and CITIC Group for a term of three years commencing on 1 January 2014 to 31 December 2016
“No Cap Waiver” the waiver granted by the Hong Kong Stock Exchange dated 16 September 2011 waiving the Company from strict compliance with the requirements of setting: (i) the annual caps for the Securities and Financial Products Transactions; and (ii) the cap in respect of the Maximum Daily Balance of Deposits
“PBOC” the People’s Bank of China
“PRC” the People’s Republic of China which, for the purposes of this circular, excludes Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and the Taiwan region
“Private Fund” the private fund proposed to be established by CITIC GoldStone Fund Management Co., Ltd. for the purpose of launching the designated innovative fi nancial business, details of which are set out in the letter from the Board of this Circular
“Property Leasing Framework the Existing Property Leasing Framework Agreement, as Agreement” supplemented by the Property Leasing Supplemental Agreement I “Property Leasing Supplemental the supplemental agreement I to the Existing Property Leasing Agreement I” Framework Agreement to be entered into between the Company and CITIC Group to renew the annual caps for the rentals payable and receivable by the Group under the Existing Property Leasing Framework Agreement for the three fi nancial years ending 31 December 2016
“Proposed Transfer” the transfer of the 100% equity interests in Tianjin Jinzheng and Tianjin Shenzheng to the wholly-owned subsidiary of the Private Fund at an aggregate price of not less than RMB5,004,081,200
“Relevant Annual Caps” the annual caps governing (i) the mutual provision of Securities and Financial Services under the Securities and Financial Products Transactions and Services Framework Agreement; (ii) the mutual provision of miscellaneous non-fi nancial services under the Miscellaneous Services Framework Agreement; and (iii) the rental payable and receivable by the Group under the Property Leasing Framework Agreement
“RMB”

Renminbi, the lawful currency of the PRC

— 3 —

DEFINITIONS

“Securities and Financial Products the securities and fi nancial products transactions between the Transactions” Group and CITIC Group and its associates contemplated under the Securities and Financial Products Transactions and Services Framework Agreement
“Securities and Financial Services” the securities and fi nancial services between the Group and CITIC Group and its associates contemplated under the Securities and Financial Products Transactions and Services Framework Agreement
“Securities and Financial Products the securities and fi nancial products transactions and services Transactions and Services framework agreement to be entered into between the Company and Framework Agreement” CITIC Group for a term of three years commencing on 1 January 2014 and expiring on 31 December 2016
“Share(s)” A Shares and H Shares
“Shareholder(s)” A Shareholders and H Shareholders
“Shenzhen CITIC Tower” 4th to 22nd Floors, Shenzhen CITIC Securities Tower, located at No. 8 Zhong Xin San Road, Futian District, Shenzhen, Guangdong Province
“Somerley” Somerley Limited, a corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate fi nance) and Type 9 (asset management) regulated activities under the SFO, is the independent fi nancial adviser to the Independent Board Committee and the Independent Shareholders in respect of the non-exempt continuing connected transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps thereof
“Tianjin Jingzheng” Tianjin Jingzheng Property Services Limited (天津京證物業服務有限公司), a wholly-owned subsidiary of the Company
“Tianjin Shenzheng” Tianjin Shenzheng Property Services Limited (天津深證物業服務有限公司), a wholly-owned subsidiary of the Company

— 4 —

LETTER FROM THE BOARD

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 6030)

Directors:

Mr. WANG Dongming (Executive Director) Mr. CHENG Boming (Executive Director) Mr. YIN Ke (Executive Director)

Mr. JU Weimin (Non-executive Director)

Registered offi ce:

North Tower, Excellence Times Plaza II No. 8 Zhong Xin San Road Futian District Shenzhen, Guangdong Province PRC

Mr. FANG Jun (Non-executive Director)

Principal place of business in

Mr. WU Xiaoqiu (Independent Non-executive Director) Mr. LEE Kong Wai, Conway (Independent Non-executive Director)

Mr. RAO Geping (Independent Non-executive Director)

Hong Kong 26th Floor, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

Mr. WEI Benhua (Independent Non-executive Director)

14 October 2013

To the H Shareholders,

(1) CONTINUING CONNECTED TRANSACTIONS: RENEWAL OF THE RELEVANT ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS;

(2) PROPOSED TRANSFER OF EQUITY INTERESTS IN SUBSIDIARIES FOR THE LAUNCHING OF DESIGNATED INNOVATIVE FINANCIAL BUSINESS;

(3) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION;

(4) PROPOSED MANDATE TO REAUTHORIZE THE COMPANY TO ISSUE COMMERCIAL PAPERS; AND

NOTICE OF THE EGM

1. INTRODUCTION

On behalf of the Board, I would like to invite you to attend the EGM to be held at Beijing Room, 3/F, Kempinski Hotel Beijing Lufthansa Center, 50 Liangmaqiao Road, Chaoyang District, Beijing, the PRC at 9:30 a.m. on Friday, 29 November 2013.

The purpose of this circular is to give you notice of the EGM and to provide you with information reasonably necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM.

— 5 —

LETTER FROM THE BOARD

2. CONTINUING CONNECTED TRANSACTIONS: RENEWAL OF THE RELEVANT ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS

I. Background

Reference is made to the prospectus of the Company dated 22 September 2011 in relation to the continuing connected transactions of the Company contemplated under (i) the Existing Securities and Financial Products Transactions and Services Framework Agreement; (ii) the Existing Miscellaneous Services Framework Agreement; and (iii) the Existing Property Leasing Framework Agreement.

As disclosed in the prospectus, the Group has been, in the ordinary and usual course of its businesses, entering into continuing connected transactions with CITIC Group and its associates including, Securities and Financial Products Transactions, provision of Securities and Financial Services and miscellaneous non-fi nancial services as well as lease of properties. To comply with the requirements of the Hong Kong Listing Rules, the Company entered into the Existing Framework Agreements with CITIC Group and set the Relevant Annual Caps for the three fi nancial years ending 31 December 2013.

In relation to the Securities and Financial Products Transactions and the Maximum Daily Balance of Deposits for the three fi nancial years ending 31 December 2013, the Company had applied to the Hong Kong Stock Exchange on 11 August 2011 for, and the Hong Kong Stock Exchange had granted to the Company on 16 September 2011, a waiver from strict compliance with the requirements of setting the annual caps in respect of the Securities and Financial Products Transactions and the cap in respect of the Maximum Daily Balance of Deposits.

As the existing Relevant Annual Caps and the term of the No Cap Waiver are due to expire by the end of December 2013, and the Company will continue the continuing connected transactions with CITIC Group and its associates and continue to deposit its proprietary cash balances and customers’ funds with the banking subsidiaries of CITIC Group, the Company proposes to (i) enter into the Framework Agreements with CITIC Group and (ii) renew the Relevant Annual Caps for the three fi nancial years ending 31 December 2016. The Company had also applied for, and was granted by the Hong Kong Stock Exchange on 24 September 2013, the renewal of the No Cap Waiver for another term of three years ending 31 December 2016.

II. The Framework Agreements

Set out below are the principal terms of the Framework Agreements:

A. Securities and Financial Products Transactions and Services Framework Agreement

Subject to the Independent Shareholders’ approval at the EGM to be convened, the Company will enter into the Securities and Financial Products Transactions and Services Framework Agreement with CITIC Group for a term of three years (subject to renewal) commencing from 1 January 2014 to 31 December 2016.

— 6 —

LETTER FROM THE BOARD

Pursuant to the Securities and Financial Products Transactions and Services Framework Agreement, the Group and CITIC Group and its associates agree to engage in the Securities and Financial Products Transactions and mutually provide the Securities and Financial Services to each other during their respective ordinary and usual course of businesses in accordance with the applicable normal market practices and on normal commercial terms, the principal terms of which are summarized as follows:

a. Securities and Financial Products Transactions

The Securities and Financial Products Transactions include the following:

i. Products with fi xed income features — including, but not limited to, bonds, funds, trusts, wealth management products, asset management plans, assets securitized products, convertible bonds, bond lending and borrowing, structured products, swaps, futures, forwards, options and other fi nancial products with fi xed income features;
ii. Fixed income related derivative products — including, but not limited to, interest rates and credit derivatives;
iii. Equity-linked products — including, but not limited to, trading of equity derivatives such as equity, funds, trusts and wealth management products;
iv. Financing transactions — fi nancing transactions among fi nancial institutions with or without guarantees/pledges including, but not limited to, interbank lending and borrowing, repurchase, interbank deposits, usufruct, asset securitization, corporate account overdraft, pledge loans, holding debt certifi cates for each other such as commercial papers, benefi ciary certifi cates, subordinated debts, corporate bonds; and
v. Other related securities and fi nancial products permitted by the regulatory authority — including, but not limited to, futures, foreign exchange, commodities trading and options.

Pricing Basis

The Securities and Financial Products Transactions, whether or not conducted through the PRC interbank bond market, will be conducted by the parties at the prevailing market prices or rates normally applicable to independent counterparties for the same type of transactions concerned.

— 7 —

LETTER FROM THE BOARD

Historical Figures

A breakdown of the historical transaction fi gures in respect of the Securities and Financial Products Transactions between the Group and CITIC Group and its associates for the preceding two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013 is as follows:

Approximate Historical Figures For the preceding two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013 Securities and Financial 30 June Products Transactions 2011 2012 2013 (RMB million) (RMB million) (RMB million)

Cash Infl ow

Cash Inf ow
Total cash inf ow to the Group
arising from sales of f xed
income products and equity-
linked products, interests
received from f xed income
derivative products, and
borrowing/repurchase of
f nancing transactions	23,401	36,361	33,112
Cash Outf ow
Total cash outf ow from the Group
arising from purchase of f xed
income products and equity-
linked products, interests paid
for f xed income derivative
products, and lending/reverse
repurchase of f nancing
transactions	19,068	22,120	28,296

Proposed Annual Caps for the Securities and Financial Products Transactions

Pursuant to the Hong Kong Listing Rules, the Company is required to set the maximum aggregate annual caps for the Securities and Financial Products Transactions for the three fi nancial years ending 31 December 2016. Given that the transactions are of various types and conducted in accordance with the market practices and on normal commercial terms with high frequency, and that factors including the volatility of the securities market and unpredictable regulatory policies, the Company had applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock Exchange had granted to the Company on 24 September 2013, a waiver from strict compliance with the requirement of setting the relevant maximum aggregate annual caps.

— 8 —

LETTER FROM THE BOARD

Maximum Daily Balance of Deposits

Pursuant to the Hong Kong Listing Rules, the Company is also required to set the cap in respect of the maximum daily balance of deposits, including the deposits of the Group’s proprietary funds and its customers’ funds with the banking subsidiaries of CITIC Group in the PRC and Hong Kong for the three fi nancial years ending 31 December 2016. Given that the Company is required by the relevant PRC regulations to place the cash balance of its customers’ settlement funds with qualifi ed PRC commercial banks, the Company has no control over which PRC bank its customers are to open their accounts, as well as the amounts of such deposits and their withdrawals and changes in the amounts of such deposits for which the Company has no control. In addition, it is extremely diffi cult for the Company to estimate the amount of incoming funds to be deposited with PRC commercial banks, which may include the banking subsidiaries of CITIC Group and its associates, on a daily basis, given that the fi nancial and securities businesses of the Company are highly responsive to the market and may fl uctuate widely within short timeframe. Given the factors above, the Company had applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock Exchange had granted to the Company on 24 September 2013, a waiver from strict compliance with the requirement of setting the relevant cap.

b. Securities and Financial Services

The mutual provision of Securities and Financial Services include the following:

Services to be provided by the Group to CITIC Group and its associates

i. Underwriting and sponsorship services — including, but not limited to, underwriting and sponsorship services for equity securities, fi xed income products, structured products and other derivative products;
ii. Other investment banking services — including, but not limited to, fi nancial advisory services relating to corporate restructuring, mergers and acquisition;
iii. Brokerage services — including, but not limited to, securities brokerage and related fi nancial products services as well as futures brokerage services such as treasury bond futures;
iv. Financial products sales agency services — including, but not limited to, provision of sales agency services for fi nancial products;
v. Entrusted asset management services — including, but not limited to, assets management services for assets entrusted by customers; and
vi. Other securities and fi nancial advisory and consulting services.

— 9 —

LETTER FROM THE BOARD

Services to be provided by CITIC Group and its associates to the Group

i. Deposit services — including, but not limited to, (a) deposits of cash balances arising from the business operations of the Group including cash from daily operations, proceeds from fund raising activities such as equity and bond issuances; (b) cash deposits from the customers of the Group; and (c) other deposits;
ii. Financial products sales agency services — including, but not limited to, provision of sales agency services for fi nancial products;
iii. Client deposits management and custody services — including, but not limited to, management services provided by the banking subsidiaries of CITIC Group for managing the cash deposits of non-fi nancial institutional customers of the Group, which are required by the relevant PRC laws and regulations to be deposited into the accounts of the Group with a PRC bank, and custody services provided by the banking subsidiaries of CITIC Group for securities and fi nancial products issued by the Group;
iv. Loan services — including, but not limited to, funds for business operation and loans as the working capital of the Group provided by CITIC Group and its associates; and
v. Other securities and fi nancial advisory and consulting services, and money brokerage services.

Pricing Basis and Payment Terms

The pricing principles for the mutual provision of the Securities and Financial Services are as follows:

Interest rates on deposits — the interest rates offered to the Group for the deposits placed with the banking subsidiaries of CITIC Group shall not be lower than the interest rates authorized by the PBOC for the same type of deposits offered by the commercial banks in the PRC during the same period and shall not be lower than the interest rates for the same type of deposits by the customers of such banking subsidiaries of CITIC Group.
Service fees or commission or brokerage fees — such fees or commissions charged shall be based on negotiations between the parties with reference to the prevailing market rates and in accordance with the requirements of the applicable laws and regulations of the PRC.

In respect of the transactions under the Securities and Financial Products Transactions and Services Framework Agreement, the payment terms are determined based on the then prevailing market practices at the time of entering into the specifi c transactions. In particular, for transactions involving provision of services, the Group would also consider the terms offered by CITIC Group and its associates as well as the other independent service providers and choose to transact with the counterparty which offers more favourable terms that are in the Group’s interests.

— 10 —

LETTER FROM THE BOARD

Historical Figures

A breakdown of the historical transaction fi gures in respect of the Securities and Financial Services between the Group and CITIC Group and its associates for the preceding two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013 is as follows:

	Approximate Historical Figures	Approximate Historical Figures	Approximate Historical Figures
	For the preceding two f nancial years
	ended 31 December 2012 and
	the six months ended 30		June 2013
			30 June
Securities and Financial Services	2011	2012	2013
	_(RMB million) (RMB million) _		(RMB million)
Revenue derived from provision of
Securities and Financial Services
by the Group to CITIC Group and
its associates	731	753	269
Expenses incurred for Securities and
Financial Services provided by
CITIC Group and its associates to
the Group	62	36	26

Proposed Annual Caps and Rationale

The Company estimates the proposed annual caps for the continuing connected transactions in respect of the mutual provision of Securities and Financial Services for the three fi nancial years ending 31 December 2016 as set out in the table below.

	Proposed Annual Caps	Proposed Annual Caps
	For the f nancial year ending 31 December
Securities and Financial Services	2014	2015	2016
	(RMB million) (RMB million) (RMB		million)
Revenue derived from provision of
Securities and Financial Services
by the Group to CITIC Group and
its associates	2,400	2,500	2,800
Expenses incurred for Securities and
Financial Services provided by
CITIC Group and its associates to
the Group	1,000	1,100	1,200

— 11 —

LETTER FROM THE BOARD

When estimating the annual caps for the revenue to be derived from provision of Securities and Financial Services by the Group to CITIC Group and its associates, the Company has made reference to the above historical fi gures, and also considered, among other things, the following key factors:

the potential fund raising exercises such as equity fi nancing, debt fi nancing and initial public offering, to be undertaken by CITIC Group and its associates in the next three fi nancial years, in which the Company may provide investment banking services such as underwriting and sponsorship services. Assuming these transactions are to take place in the next three fi nancial years, it is anticipated that the revenue to be derived from these transactions will increase substantially;
the expected fi nancial and investment advisory services and other service fees to be received by the Group in connection with the issuance of fi xed income products by CITIC Group or its associated/subsidiary companies;
the potential growth in the Securities and Financial Services related transactions between the parties, both in terms of the range and extent associated with the business growth of CITIC Group and its associates, such as futures brokerage, distribution of fi nancial products, equity fl owbased business and assets management, given the increasing cooperation between the Group and CITIC Group as well as the expansion of the Group’s business and the launching of its innovative businesses for the three fi nancial years ending 31 December 2016. In particular, with the liberalization of the domestic regulatory environment, the Company is able to continuously enlarge its business scope by applying for more business qualifi cations to engage in more varieties of businesses with its business counterparts including CITIC Group and its associates. Since 2011, the business qualifi cations of the Company have been substantially expanded to include, for examples, stock repo, underwriting private placement of bonds by small-to-medium-sized companies, entrusted management of insurance funds, distribution of fi nancial products, stock return swap business refi nancing business and sideline insurance agency business, etc. The Company intends to apply for further innovative fi nancial business qualifi cations, such as securities investment mutual fund management qualifi cation, the agency services qualifi cation for precious metal spot contracts, and the proprietary business qualifi cation for spot gold contracts; and
in respect of the interest on deposits, the expected increase in future interest rates for the three fi nancial years ending 31 December 2016 and the expected potential increase in the revenue to be derived from interest income arising from the potential increase in the amounts of client deposits placed with the banking subsidiary of CITIC Group for the three fi nancial years ending 31 December 2016.

— 12 —

LETTER FROM THE BOARD

When estimating the annual caps for the expenses to be incurred by the Group for Securities and Financial Services provided by CITIC Group and its associates, the Company has made reference to the above historical fi gures, and also considered, among other things, the following key factors:

the potential growth in the Securities and Financial Services provided to the Group from the business growth of CITIC Group and its associates and the increasing level of business operation between CITIC Group, its associates, and the Group for the three fi nancial years ending 31 December 2016. With the expansion of the Group’s business and the launching of innovative businesses, CITIC Group and its associates will cooperate with the Group in an increasing number of areas, such as investment banking, brokerage, assets management, fi nancial advisory services, distribution of fi nancial products and other innovative businesses by providing more value-added services;
the potential increase in the demand for client deposits management services arising from the expected growth in the Group’s business in the PRC; and
in respect of loans services, the expected increase in future interest rates for the three fi nancial years ending 31 December 2016 and the expected substantial increase in the amount of loans required for working capital arising from the Group’s proposed business expansion, in particular, capital intermediary businesses (including margin trading business).
Note: The proposed annual caps have taken into account the infl ation factor and on the principal assumptions that, for the duration of the projected period, there will not be any adverse change or disruption in market conditions, operation and business environment or government policies which may materially affect the businesses of the Group, and those of CITIC Group and/or its associates during the term of the Securities and Financial Products Transactions and Services Framework Agreement.

In terms of determining the pricing for the Securities and Financial Products Transactions conducted through the PRC interbank bond market, the transactions are conducted through independent money brokerage fi rms approved by the PBOC or inquiry dealing after arms’ length negotiation with the counterparties, both of which have to be executed and reported through the trading system of National Interbank Funding Centre (全國銀行間同業拆借中心) (“NIFC”) under the strict regulatory supervision by the PBOC, NIFC and National Association of Financial Market Institutional Investors (中國銀行間市場交易商協會) pursuant to the Measures for the Administration of Bond Transactions in the National Interbank Bond Market (全國銀行間債券市場債券交易管理辦法), the Measures for Administration of Shortterm Financing Bonds of Securities Companies (證券公司短期融資券管理辦法), the Notice of the General Offi ce of the People’s Bank of China on Issuing the Detailed Rules for the Administration of Bond Issuance by Bidding in the Inter-Bank Bond Market (中國人民銀行辦公廳關於印發《銀行間債券市場債券招標發行管理細則》的通知), the Provisions on the Administration of Subordinated Debts of Securities Companies (證券公司次級債管理規定), and the Announcement for Corporate Bonds Entering into the PRC Interbank Bond Market (公司債券進入銀行間債券市場交易流通的有關事項公告). The pricing for such transactions are determined at the

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LETTER FROM THE BOARD

prevailing market prices with reference to the estimated/evaluated prices published by China Central Depository & Clearing Co. Ltd. (中央國債登記結算有限責任公司) (“CCDC”) and the market quotations on comparable transactions. In respect of the Securities and Financial Products Transactions conducted through the PRC stock exchanges, which is regulated by the CSRC, the transactions will be executed automatically via the trading system of the stock exchanges. All market quotations provided by CCDC for interbank bond market transactions and the execution details through NIFC are information available to the market participants, whereas the execution details through the PRC stock exchanges are information available to the general public.

In respect of the pricing for the Securities and Financial Services, the service fees and commission payable are determined by the parties upon arm’s length negotiation on a case-by-case basis at the then prevailing market rates for the same types of transactions concerned or comparable transactions in accordance with the relevant requirements under the Law of the People’s Republic of China on Commercial Banks (2003 Amendment) (中華人民共和國商業銀行法(2003 修正)), Provisions on the Administration of Proxy Sale of Financial Products by Securities Companies (證券公司代銷金融產品管理規定), Administrative Measures for the Recommendation Business of the Issuance and Listing of Securities (2009 Amendment) (證券發行上市保薦業務管理辦法(2009修訂)) , Securities Law of the People’s Republic of China (2005 Revision) (中華人民共和國證券法(2005 修訂)), Measures for the Administration of Securities Offering and Underwriting (2012 Revision) (證券發行與承銷管理辦法(2012修訂)), Interim Provisions on the Securities Investment Advisor Business (證券投資顧問業務暫行規定), Administrative Measures for the Financial Consultancy Business in the Merger, Acquisition and Reorganization of Listed Companies (上市公司並購重組財務顧問業務管理辦法) and Regulation on the Supervision and Administration of Securities Companies (證券公司監督管理條例), which are publicly available information.

As the securities business engaged by the Group is a highly regulated business in China and a majority of the Group’s employees are licensed securities professionals, the Group and its employees are subject to various governance and reporting requirements, as well as code of ethnics set out by the CSRC and the Securities Association of China (中國證券業協會) (“SAC”), in addition to the requirements under the listing rules of the Hong Kong Stock Exchange and Shanghai Stock Exchange. For examples, the Company is required to regularly report to the Shenzhen Bureau of the CSRC and SAC on its business operations of each segment of the Company’s principal businesses. The Company is also required to report to the Shenzhen Bureau of the CSRC on matters relating to its corporate governance and internal control in addition to its business operations on a quarterly basis, etc. Further, the Company is required to regularly or irregularly report to the relevant regulatory authorities on the operations of its asset management, brokerage, investment banking and proprietary businesses. The auditors of the Company, Ernst & Young, also reviews the continuing connected transactions of the Company and submits its annual confi rmation to the Board and the Hong Kong Stock Exchange pursuant to the Hong Kong Listing Rules confi rming, among others, that the continuing connected transactions taking place in the relevant fi nancial reporting period were conducted by

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LETTER FROM THE BOARD

the parties in accordance with the terms and the pricing policy set out in the relevant Framework Agreements. Based on the aforesaid, the Company considers that the pricing mechanisms of the transactions under the Securities and Financial Products Transactions and Services Framework Agreement are transparent and subject to strict regulatory supervision and review by the auditors of the Company.

B. Miscellaneous Services Framework Agreement

The Company will enter into the Miscellaneous Services Framework Agreement for a term of three years (subject to renewal) commencing from 1 January 2014 to 31 December 2016. Pursuant to the Miscellaneous Services Framework Agreement, CITIC Group and its associates provide miscellaneous non-fi nancial services to the Group including, among other things, provision of information technologies, internet network services, network maintenance, renovation/decorations, trainings, insurance, enterprise annuity management services, advertising and miscellaneous building management services. On the other hand, the Group also provides miscellaneous non-fi nancial services to CITIC Group and its associates including, among other things, information technologies, internet network, advertising rentals, conference services and other miscellaneous services for which the Group charges certain service fees.

Pricing Basis and Payment Terms

Pursuant to the Miscellaneous Services Framework Agreement, and as a general principle, the mutual provision of non-fi nancial services under the Miscellaneous Services Framework Agreement will be provided in the ordinary and usual course of business of the respective parties on normal commercial terms based on arm’s length negotiation.

In relation to the pricing procedures for transactions contemplated under the Miscellaneous Services Framework Agreement, according to the procurement policy of the Company, for transactions involving a transaction amount of over RMB50,000 (inclusive) or signifi cant equipment or services acquisition which is material to the operation and management of the Company, as a general principle, the relevant projects shall go through the independent procurement procedures of the Company whereby various suppliers are invited to submit their bids. In certain circumstances, the aforesaid transactions may also be conducted by means of inquiry, provided that specifi c reasons for not going through bidding procedures shall be set out in the relevant internal approval documents according to the procurement policy. Specifi c selection criteria are set by the procurement committee of the Company on a case-by-case basis and generally, favourable pricing terms that are in the Group’s interests is a key determining factor for winning a bid. Likewise, for non-fi nancial miscellaneous services provided by the Group, the Group may from time to time be subject to the internal procurement and pricing procedures required by CITIC Group and its associates.

In respect of the transactions under the Miscellaneous Services Framework Agreement, the payment terms are determined based on the then prevailing market practices at the time of entering into the specifi c transactions. In particular, the Group would also consider the terms offered by CITIC Group and its associates as well as the other independent service providers and choose to transact with the counterparty which offers more favourable terms that are in the Group’s interests.

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LETTER FROM THE BOARD

Historical Figures

A breakdown of the historical transaction fi gures in respect of the mutual provision of miscellaneous non-fi nancial services between the Group and CITIC Group and its associates for the preceding two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013 is as follows:

	Approximate Historical Figures
	For the preceding two f nancial years
	ended 31 December 2012 and
	the six months ended 30 June 2013
	30 June
Miscellaneous Services	2011 2012 2013
	(RMB million) (RMB million) (RMB million)
Revenue derived from provision of
non-f nancial services by the Group
to CITIC Group and its associates	0 0.02 0.01
Expenses incurred from provision of
non-f nancial services by CITIC Group
and its associates to the Group	38 29 19

Proposed Annual Caps and Rationale

The Company estimates the annual caps for the continuing connected transactions in respect of the mutual provision of miscellaneous non-fi nancial services between the Group and CITIC Group and its associates for the three fi nancial years ending 31 December 2016 as set out in the table below:

	Proposed Annual Caps	Proposed Annual Caps
	For the	f nancial year ending
		31 December
Miscellaneous Services	2014	2015	2016
	(RMB million)	(RMB million) (RMB million)
Revenue derived from provision of
non-f nancial services by the Group to
CITIC Group and its associates	4	5	6
Expenses incurred from provision of
non-f nancial services by CITIC Group
and its associates to the Group	100	110	120

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LETTER FROM THE BOARD

The annual caps for the revenue to be derived by the Group from provision of non-fi nancial services to CITIC Group and its associates have been estimated by making reference to the above historical fi gures (in particular, the highest historical transaction amounts in the past three years), and also taking into consideration the expected increase in the provision of services in connection with the information technologies, internet network, conference services, trainings, etc. to be provided by the Group to CITIC Group and its associates following the formation of an IT subsidiary by the Company focusing on provision of IT support services relating to pricing for fi nancial products, transaction settlement and risk management in the next three fi nancial years; and the expected increase in the revenue to be received by the Group from CITIC Group and its associates in connection with advertising rentals and book royalties.

The annual caps for the expenses payable to CITIC Group and its associates for the provision of non-fi nancial services have been estimated by making reference to the above historical fi gures (in particular, the highest transaction amounts in the past three years), and also taking into consideration, among other things, the following key factors:

with the launching of the Group’s innovative fi nancial businesses and the increasing usage of electronic platform for execution and settlement of transactions, the expected substantial increase in the demand of internet network, network maintenance and advancement, and information technologies services by the Group, and the potential supply of IT equipment by CITIC Group and its associates for the three fi nancial years ending 31 December 2016;
the expected increase in the existing building management fees as well as the expenses incurred in connection with the proposed establishment of new securities branches by the Group and the consequential increase in building management fees for the three fi nancial years ending 31 December 2016;
the expected increase in insurance premium to be paid to CITIC-Prudential Life Insurance, an associate of CITIC Group, for medical and traffi c accident insurance, as the number of the employees of the Group is expected to increase in the three fi nancial years ending 31 December 2016. The Group is expected to provide more comprehensive insurance to its employees, which will accordingly result in increasing insurance coverage and premiums;
the increase in the Group’s owned properties and the expansion of brokerage business require more decoration services; and
the potential increase in the fees for trainings and other miscellaneous services payable to CITIC Group and its associates for the three fi nancial years ending 31 December 2016.
Note: The proposed annual caps have taken into consideration the infl ation factor and based on the assumption that, for the duration of the projected period, there will not be any adverse change or disruption in market conditions, operation and business environment or government policies which may materially affect the business of the Group as well as those of CITIC Group and/or its associates during the term of the Miscellaneous Services Framework Agreement.

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LETTER FROM THE BOARD

C. Property Leasing Framework Agreement

On 26 September 2013, the Board resolved that the Company to enter into the Property Leasing Supplemental Agreement I to renew the annual caps for the rentals payable and receivable by the Group under the Existing Property Leasing Framework Agreement for the three fi nancial years ending 31 December 2016. Apart from the renewal of the annual caps for the three fi nancial years ending 31 December 2016, the terms of the Property Leasing Framework Agreement remain unchanged.

The Existing Property Leasing Framework Agreement was entered into by the parties for a term of 10 years (subject to renewal) expiring on 22 September 2021.

Pursuant to the Property Leasing Framework Agreement, the Group agrees to lease certain properties from and to CITIC Group and its associates, the principal terms of which are summarized as follows:

i. the rentals shall be determined with reference to the prevailing market rent at the relevant location;
ii. the Group and CITIC Group or its relevant associates shall enter into separate agreements to set out the specifi c terms and conditions in respect of the relevant leased properties according to the principles, and within the parameters, provided for under the Property Leasing Framework Agreement;
iii. the Group is entitled to lease additional gross fl oor area from and among the available properties owned by CITIC Group and its associates during the term of the Property Leasing Framework Agreement;
iv. CITIC Group and its associates are entitled to lease additional gross fl oor area from and among the available properties owned by the Group during the term of the Property Leasing Framework Agreement; and
v. either party may, at any time before the Property Leasing Framework Agreement expires, by giving not less than six months’ notice, to terminate any lease made pursuant to and contemplated under such agreement, and the rentals will accordingly be reduced.

In relation to how the rentals are determined with reference to the prevailing market rents at the relevant locations, the process involves the review and negotiation of the relevant lease contracts by the comprehensive administration department of the Company or the relevant subsidiary of the Company having consulted the advice of several reputable local real estate agents regarding the benchmarks of the prevailing market rents for similar types of properties concerned at the nearby locations, which are publicly available information. The relevant lease contracts will then be submitted to the legal department of the Company or the relevant subsidiary of the Company to review from the legal perspectives whether or not the terms of the lease contracts are in line with the terms and principles set out in the Property Leasing Framework Agreement. The lease contracts will fi nally be submitted to the management of the Company or the relevant subsidiary for approval and the implementation of the specifi c lease contracts is subject to annual review by the auditors of the Company.

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LETTER FROM THE BOARD

In respect of the rentals payable or receivable by the Group under the Property Leasing Framework Agreement, rentals shall be payable on a monthly, quarterly, semi-annual or an annual basis in cash depending on the specifi c payment terms set out in the signed lease contracts.

Historical Figures

A breakdown of the historical transaction fi gures in respect of the rentals received and paid by the Group from and to CITIC Group and its associates for the preceding two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013 is as follows:

Approximate Historical Figures For the preceding two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013

			30 June
Property Leasing	2011	2012	2013
	_(RMB million) (RMB million) _		(RMB million)
Rental expenses incurred for lease of
properties from CITIC Group and
its associates	40	33	17
Rental income received from lease
of properties to CITIC Group and
its associates	20	25	12

Proposed Annual Caps and Rationale

The Company estimates the proposed annual caps for the rentals payable and receivable by the Group under the Property Leasing Framework Agreement for the three fi nancial years ending 31 December 2016 as set out in the table below. These caps are inclusive of management fees relating to the relevant leased properties (if any) and are subject to adjustments which may be made once every three years in accordance with the then prevailing market rates:

	Proposed Annual Caps	Proposed Annual Caps
	For the f nancial year ending 31 December
Property Leasing	2014	2015	2016
	(RMB million) (RMB million) (RMB		million)
Rental expenses to be incurred for
lease of properties from CITIC Group
and its associates	40	45	50
Rental income to be received from lease
of properties to CITIC Group and
its associates	33	35	40

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LETTER FROM THE BOARD

When estimating the proposed annual caps for the rental expenses to be incurred by the Group, the Company has made reference to the above historical fi gures and also considered, among other things, the following key factors:

the potential expansion of the Group’s business and the consequential increase in the Group’s demand for additional offi ce space, which may be leased from CITIC Group and its associates. For instance, the expansion of the Company’s brokerage business will lead to increasing demand on leasing properties. Given that most of the newly established branches are of small size, the increase in gross fl oor area and rentals is insignifi cant;
the potential expansion of the Group’s business in Hong Kong and overseas may require additional offi ce space in Hong Kong, which may be leased from CITIC Group and its associates;
the expected rental increase upon renewal of some of the leases in China and Hong Kong with CITIC Group or its associates for the three fi nancial years ending 31 December 2016; and
any potential increase in the gross fl oor area to be leased from CITIC Group and its associates for the three fi nancial years ending 31 December 2016.

When estimating the proposed annual caps for the rental income to be received by the Group, the Company has made reference to the above historical fi gures and also considered, among other things, the following key factors:

CITIC Group and its associates will continue to lease more gross fl oor area from the Group in the forthcoming three fi nancial years ending 31 December 2016, considering the potential business expansion of CITIC Group and its associates in China;
with the increase in the Group’s owned properties, CITIC Group and its associates may lease more properties from the Group; and
the potential rental increases pursuant to the existing leasing agreements and the market conditions for the three fi nancial years ending 31 December 2016.

The continuing connected transactions contemplated under the Framework Agreements are conducted in the ordinary and usual course of business of the Group and on a non-exclusive basis. In choosing the service providers for each transaction under the relevant Framework Agreements, the Group would principally consider the terms offered by CITIC Group and its associates and the other independent service providers and choose to transact with the counterparty which offers better terms that are in the Group’s interests. In addition, the Group would also consider the nature and requirements of the transaction on a case-by-case basis. Given CITIC Group is a large state-owned conglomerate and many of its associates are prominent market players in China; and the historical connection and long standing cooperation relationship between the Group and CITIC Group and its associates, CITIC Group and its associates have a thorough understanding of the needs and requirements of the Group and are able to offer transaction terms and services that specifi cally address the needs and requirements of the Group. Accordingly, in addition

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LETTER FROM THE BOARD

to the terms offered by the counterparties, the Group also consider factors such as the corporate background, creditworthiness and reliability of the counterparties; their ability to execute transactions in accordance with the contractual terms; their understanding of the needs and requirements of the Group, etc., in order to maximize the Group’s overall interests in a particular transaction and minimize the Group’s transaction costs.

In terms of the measures and steps taken by the Company in monitoring the pricing standards for the transactions under the Framework Agreements, in general, the pricing standards/mechanisms for Securities and Financial Products Transactions and the provision of Securities and Financial Services under the Securities and Financial Products Transactions and Services Framework Agreement are transparent and subject to strict regulatory supervision and requirements of the applicable PRC laws and regulations. The pricing standards/mechanisms set out in the implementation agreements under the Property Leasing Framework Agreement and the Miscellaneous Services Framework Agreement are subject to internal scrutiny involving the legal department, compliance department, board of the directors’ offi ce and other specifi c operational and administrative departments. In addition, the conduct of continuing connected transactions under the Framework Agreements is also subject to annual review by all independent non-executive Directors, the Supervisory Committee of the Company and the auditors of the Company to ensure the transactions are conducted in accordance with the terms including the pricing principles as set out in the relevant Framework Agreements. The Related Party Transactions Control Committee comprising all independent non-executive Directors is also responsible for, among other things, monitoring the implementation of the Company’s related party transactions management system and reviewing major connected transactions of the Company including the continuing connected transactions on an irregular basis.

III. Reasons for and benefi ts expected to acquire from the Framework Agreements

The above continuing connected transactions are and will be conducted in the ordinary and usual course of business of the Group. Such transactions will continue to be agreed on arm’s length basis with terms that are fair and reasonable to the Company. Due to the historical connection and long-term cooperation relationship between the Group and CITIC Group and its associates, the Directors (including the independent non-executive Directors) believe that it is benefi cial to continue the continuing connected transactions by way of entering into the Framework Agreements, as these transactions have facilitated and will continue to facilitate the overall business operations and growth of the Group’s business. Meanwhile, these transactions will provide cost synergies by integrating advantageous resources between the Group and CITIC Group and its associates, thereby reducing the aggregate operational cost and general expenditure so as to further improve the profi tability and the leading position of the Company in the securities industry. Further, CITIC Group and its associates will be able to develop a deeper understanding in the operations of the Company, which in turn will render more expedient and effi cient service and/or product provision to the Company when compared to those services and/or products provided by independent third parties.

The Directors (excluding the independent non-executive Directors, whose view on the terms of the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps for the mutual provision of Securities and Financial Services will be set out in the letter from the Independent Board Committee after considering the advice from Somerley) are of the view that the transactions contemplated under the Framework Agreements will be conducted on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and that the Relevant Annual Caps thereof are fair and reasonable.

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LETTER FROM THE BOARD

IV. Hong Kong Listing Rules Implications

CITIC Group is a substantial shareholder of the Company indirectly holding an aggregate of 20.91% interest in the Company as at the date hereof. Accordingly, CITIC Group and its associates are connected persons of the Company under the Hong Kong Listing Rules and the proposed transactions to be conducted between the Group and CITIC Group and its associates under the Framework Agreements constitute continuing connected transactions for the Company under Chapter 14A of the Hong Kong Listing Rules.

Since the highest of the applicable percentage ratios in respect of each of (i) the proposed annual caps for the mutual provision of miscellaneous non-fi nancial services under the Miscellaneous Services Framework Agreement; and (ii) the proposed annual caps for the rental payable and receivable by the Group under the Property Leasing Framework Agreement is more than 0.1% but less than 5%, the continuing connected transactions contemplated thereunder are subject to the reporting and announcement requirements but are exempt from the Independent Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules.

Meanwhile, as the highest of the applicable percentage ratios in respect of the proposed annual caps for the mutual provision of Securities and Financial Services is more than 5%, the proposed continuing connected transactions contemplated thereunder are subject to the reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Mr. Ju Weimin, Director of the Company, who is also a director of CITIC Group, is deemed to have a material interest in the transactions contemplated under the Framework Agreements and accordingly, he had abstained from voting on the board resolutions in relation to the Framework Agreements, the transactions contemplated thereunder and the proposed caps thereof in accordance with the Company Law of the PRC and the Hong Kong Listing Rules.

V. General Information

Information on CITIC Group

CITIC Group is a large state-owned multinational conglomerate engaging in both fi nancial and non-fi nancial businesses. Its fi nancial business covers industries and areas including banking, securities, trust, insurance, fund management and asset management, while its non-fi nancial business covers real estate, engineering contracting, resources and energy, infrastructure construction, machinery manufacturing and IT industry. As at the end of 2012, CITIC Group’s total assets amounted to RMB3,565.7 billion with net assets of RMB235.5 billion, annual operating income of RMB349.8 billion and net profi t of RMB30.16 billion.

Among the subsidiaries of CITIC Group, the following companies engage in more business transactions with the Company: CITIC Holdings Limited, China CITIC Bank Corporation Limited, CITIC Trust Co., Ltd., CITIC Pacifi c Limited, Dah Chong Hong Holdings Limited, CITIC Prudential Life Insurance Co., Ltd., CITIC-Prudential Fund Management Company Ltd., China CITIC Bank International Limited, CITIC Networks Co., Ltd., etc.

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LETTER FROM THE BOARD

Information on the Company

The Company is a leading full-service investment bank in China. The Company, together with its subsidiaries, offers a wide range of products and services to a large and diverse client base that includes corporations, fi nancial institutions and individuals. Its principal business lines, products and services include investment banking, sales and trading, brokerage, assets management and investment.

3. PROPOSED TRANSFER OF EQUITY INTERESTS IN SUBSIDIARIES FOR THE LAUNCHING OF DESIGNATED INNOVATIVE FINANCIAL BUSINESS

I. Background

On 26 September 2013, the 17th meeting of the 5th Session of the Board of the Company approved, among other things, the proposed launching of designated innovative fi nancial business of the Company. This designated innovative fi nancial business mainly involves the devise of a designated innovative fi nancial product with the subject assets being the entire equity interests of the wholly-owned subsidiaries of the Company, namely Tianjin Jingzheng and Tianjin Shenzheng after the completion of the Internal Restructuring. By establishing a private fund, through which funds will be raised from the investors to invest in high-quality real estate assets and returns will be generated to the investors through rental yield, value appreciation and disposal gains, etc. derived from such real estate assets.

The proposal under this transaction is detailed as follows: the Company intends to transfer the 100% equity interests in Tianjin Jingzheng and Tianjin Shenzheng to the wholly-owned subsidiary of the Private Fund proposed to be established by GoldStone Fund at a price of not less than RMB5,004,081,200, so as to inject the ownership of the properties and the corresponding land use rights of Beijing CITIC Tower and Shenzhen CITIC Tower owned by the Company to the whollyowned subsidiary of the Private Fund, for the purpose of providing long-term and steady investment returns for the investors of the Private Fund.

Upon completion of the abovementioned Proposed Transfer, the offi ce premises of the Company in Beijing CITICS Tower and Shenzhen CITICS Tower will remain at the same place, which will be leased by the Company at market rates, and the actual rental will be subject to the lease contract(s) to be signed. The future rental income of Beijing CITICS Tower and Shenzhen CITICS Tower and the future disposal gain or any value-added gain from the listing of the Private Fund will become the sources for income distribution of the Private Fund.

II. Basic Information of the Proposed Transfer of Assets

Tianjin Jingzheng and Tianjin Shenzheng were established by the Company in the PRC as its wholly-owned subsidiaries on 14 May 2013, each with a registered capital of RMB100,000, and the business scope of each of them is provision of property services in relation to proprietary properties. Currently, the Company is in the process of implementing the Internal Restructuring, and the relevant procedures relating to the capital increases and property ownership transfer are in progress. The subjects of the Proposed Transfer are the 100% equity interest of Tianjin Jingzheng and the 100% equity interest of Tianjin Shenzheng after the Internal Restructuring.

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LETTER FROM THE BOARD

Details of the assets of Beijing CITICS Tower and Shenzhen CITICS Tower are as follows:

Unit: RMB

As of 31 December 2012, audited:

	Original cost	Accumulated
Name of f xed assets	of the asset	depreciation	Net asset value
Beijing CITICS Tower	2,307,997,267.86	56,871,746.38	2,251,125,521.48
Shenzhen CITICS Tower	660,200,516.54	23,920,494.02	636,280,022.52
As of 30 June 2013, unaudited:
	Original cost	Accumulated
Name of f xed assets	of the asset	depreciation	Net asset value
Beijing CITICS Tower	2,310,486,204.86	78,198,651.34	2,232,287,553.52
Shenzhen CITICS Tower	660,200,516.54	32,999,977.09	627,200,539.45

The Company has engaged China United Assets Appraisal Group Co., Ltd. (中聯資產評估集團有限公司), an independent qualifi ed valuer, to conduct valuation for the market values of Beijing CITICS Tower and Shenzhen CITICS Tower as at 31 December 2012, being the valuation date. The total market value of the relevant properties as at the valuation date amounted to RMB5,004,081,200. Amongst which, as at the valuation date of 31 December 2012, the market value of Beijing CITICS Tower amounted to RMB3,501,504,700 and the market value of Shenzhen CITICS Tower amounted to RMB1,502,576,500.

The market dynamics of offi ce premises in the area where the said properties located has signifi cantly driven up the price of similar properties, which have contributed to a higher appraised value. The Board is of the opinion that the above results have been reached by the valuer after reviewing all information, site investigation and market research, the valuation process is suffi cient, and the conclusion is fair and reasonable.

The Company will determine the consideration with the transferee based on the said appraised total value of Beijing CITICS Tower and Shenzhen CITICS Tower, but such consideration will not be less than the appraised total value of RMB5,004,081,200, and shall not be at a price less than the total net assets value of Tianjin Jingzheng and Tianjin Shenzheng after completing the property ownership transfer of Beijing CITICS Tower and Shenzhen CITICS Tower.

III. Establishment and Basic Information of the Private Fund

The transferee of the Proposed Transfer is the wholly-owned subsidiary of the Private Fund proposed to be established by GoldStone Fund, an indirect wholly-owned subsidiary of the Company. The wholly-owned subsidiary is the investment vehicle of the Private Fund for the specifi c purpose of holding the equity interests of the subjects under the Proposed Transfer and the relevant rights and interests of Beijing CITICS Tower and Shenzhen CITICS Tower held by it, in order to achieve the objective of providing investment services for the investors of the Private Fund. Given the Private Fund is still undergoing the regulatory approval procedures for its establishment, and it shall be

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LETTER FROM THE BOARD

promoted and established by GoldStone Fund subject to the Proposed Transfer being considered and approved at the EGM, the Private Fund and its wholly-owned subsidiary are not yet established as at the date hereof.

The total fund projected to be raised by the Private Fund amounts to not less than the consideration for the Proposed Transfer and the proposed manager of the Private Fund is GoldStone Fund, an indirect wholly-owned subsidiary of the Company. GoldStone Fund was incorporated in Tianjin on 8 July 2013 with a registered capital of RMB100 million, and its principal activities include: raising and managing customer funds to carry out equity investment, providing fi nancial advisory, investment management and related consultancy services on equity investment for its customers, engaging in equity investment in domestic enterprises with its proprietary fund, and conducting other businesses approved by the CSRC.

IV. Purpose of Implementing the Project and its Impact on the Company

The CSRC actively promotes innovation among the securities companies and encourage securities companies to develop innovative fi nancial business. The implementation of this project is expected to be the fi rst exemplary pioneer launching the real estate securitization business domestically. The related arrangements will advance the Company to make an important leap on the new horizon of innovative fi nancial operation, further enhance its market competitive edge and facilitate its development of innovative businesses.

Upon the completion of the Proposed Transfer, the Company expects that the transaction consideration to be received will not be less than RMB5,004 million, and will realize a net income after tax of more than RMB1 billion. After the completion of the Proposed Transfer, the Company will lease its existing offi ce premises in Beijing CITICS Tower and Shenzhen CITICS Tower at market rates. Being the parent company of the manager of the Private Fund, the Company will receive annual management fee income in relation to the management of the Private Fund through the fund manager, and will share excess earnings upon exit of the products in the future according to the relevant investment agreement.

In general, the Proposed Transfer will enable the Company to recognize profi t in the year on completion of the Proposed Transfer, which will in turn reduce gearing ratio, improve fi nancial indicators, realize cash infl ow and increase working capital for the Company. After the completion of the Proposed Transfer, the capital strength of the Company will be further enhanced, which will help to drive the development of our overall innovative businesses.

After the consideration and approval by the Board, the Proposed Transfer remains subject to the completion of the Internal Restructuring, the submission for consideration and approval at the EGM in compliance with the listing rules of the Shanghai Stock Exchange, and the approval at the EGM for granting authorization to the management of the Company at its sole discretion to determine and carry out any matters relating to the Proposed Transfer, the establishment of the Private Fund and the launching of designated innovative fi nancial business to the extent provided for under the Board resolution. In addition to the approval at the EGM, the Proposed Transfer remains subject to the approval of the related designated innovative fi nancial product plan by regulatory authorities. As of the date of this Circular, the Company has not entered into any agreement in respect of the Proposed Transfer.

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LETTER FROM THE BOARD

V. Hong Kong Listing Rules Implications

As each of the applicable percentage ratio(s) in respect of the Proposed Transfer does not exceed 5%, the Proposed Transfer, if proceeds, does not constitute a discloseable transaction of the Company under Chapter 14 of the Hong Kong Listing Rules. In respect of the Proposed Transfer, depending on the subsequent development, the Company will make further disclosure in accordance with the applicable Hong Kong Listing Rules.

4. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

For the purpose of encouraging securities companies to improve corporate governance, promoting the normative operation of securities companies and protecting the lawful rights and interests of securities companies’ shareholders, clients and other interested parties, the CSRC promulgated the Corporate Governance Rules for Securities Companies on 11 December 2012, which became effective on 1 January 2013. To better comply with the aforesaid rules, on 26 September 2013, the Board proposed, among other things, to amend the Articles of Association. The Supervisory Committee proposed to amend the “Rules of Procedure for the Supervisory Committee” set out in an appendix of the Articles of Association on 11 October 2013. Such amendments of the Articles of Association are subject to the approval of the Shareholders by way of special resolutions at the extraordinary general meeting and the approval of the CSRC.

Details of the proposed amendments to the Articles of Association are as follows (deletion shown by way of strikethrough and new addition by way of underline):

Article 1

The Articles of Association (the “ AOA ”) has been formulated in accordance with the Company Law of the People’s Republic of China (the “ Company Law ”), the Securities Law of the People’s Republic of China (the “ Securities Law ”), the Guidelines for the Articles of Association of Listed Companies , the Special Regulations of the State Council for the Share Offerings and Listings Overseas of Joint Stock Limited Companies (the “ Special Regulations ”), the Mandatory Provisions of Articles of Association of Companies That List Overseas, the Reply on Opinions Concerning the Supplement and Amendment to Articles of Association by Companies to Be Listed in Hong Kong , the Corporate Governance Rules for Securities Companies in order to protect the lawful rights and interests of the Company, its shareholders and creditors, and regulate the organization and acts of the Company.

Article 58

In any of the following circumstances, the ~~Board of Directors~~ Company shall immediately implement the disclosure procedure to notify all the shareholders thereof in the form of a public notice, and to report it to the branches of the CSRC at the places where ~~are the registered addressof t~~ he Company is domiciled ~~and the principle off ce of the Company~~ :

(1) the Company or any of its directors, supervisors or senior management members is suspected of committing any serious breach of any law or regulation;
(2) the fi nancial position of the Company has deteriorated to the extent that the risk control indicators are ~~leading to being~~ incompatible with the criteria set by the CSRC;

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LETTER FROM THE BOARD

(3) the Company incurs a huge loss;
(4) the Company proposes to change any of its legal representative, the Chairman of the Board of Directors, the Chairman of the Supervisory Committee, or the ~~President~~ chief person-incharge of the operation and management;
(5) an emergency occurs that materially and adversely affects or may affect the interests of the Company or its clients; and
(6) other matters that may affect the on-going operation of the Company.

Article 63

The shareholder (or its actual controller) that holds 5% or more of the shares in the Company shall ~~timely~~ notify the Company within f ve business days if:

(1) ~~his or her~~ shares in the Company held or controlled by him/her are subject to any property preservation ~~attached o~~ r ~~enforced~~ other mandatory measures;
(2) his or her shares in the Company are pledged;
(3) the actual controller of any shareholder who holds no less than 5% of the ~~he or she decides to transfer out his or her~~ shares ~~in~~ of the Company is changed;
(4) ~~he or she authorizes another person to exercise his or her shareholder rights, or reaches an agreement with another person with respect to the exercise of his or her shareholder rights;~~
~~(5)~~ he or she changes his or her name;
(5 ~~6~~ ) he or she engages in any merger or separation;
(6 ~~7~~ ) he or she is ordered to suspend operation, or is appointed a receiver, or is taken over, subject to revoke or other regulatory measures or in the process of dissolution, bankruptcy or liquidation ~~wound up, bankrupt, closed down, or taken over~~ ; ~~or~~
(7) he or she is imposed upon administrative penalties or criminal punishments due to serious violation of laws or regulations; or
(8) he or she encounters any other circumstances that may lead to transfer of ~~his or her t~~ he shares he or she holds or controls or affect the Company’s operation.

The ~~Board of Directors~~ Company shall, within ~~10~~ 5 business days from the date of knowing ~~it~~ any event abovementioned, report to the local branches of the CSRC at the places ~~of registration of the Company and at the place of the main off ce of~~ where the Company is domiciled.

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LETTER FROM THE BOARD

Article 66

The controlling shareholder and the actual controller of the Company bear a fi duciary duty toward the Company and retail shareholders. The controlling shareholder shall exercise his or her rights as an investor in strict compliance with relevant laws. It may not use such means as a profi t distribution, assets restructuring, investment in a third party, appropriation of funds, loan security, etc, or use its controlling position or through abuse of rights to harm the lawful rights and interests of the Company and the retail shareholders.

In addition to the duties under relevant laws, regulations, rules and standards, and the rules of the securities regulatory authority at the place where the shares of the Company are listed, the controlling shareholder shall not vote, in exercising his or her shareholder powers, on the following with prejudice to the interests of all or part of the shareholders:

(1) to release a director or supervisor of the responsibility to act honestly in the best interests of the Company;
(2) to approve that a director or supervisor (for his or her own or another person’s benefi t) deprive the Company of its property in any way, including but not limited to any opportunities that are advantageous to the Company; or
(3) to approve that a director or supervisor (for his or her own or another persons benefi t) deprive other shareholders of their individual rights or interests, including but not limited to rights to distributions and voting rights, but excluding a restructuring of the Company submitted to the General Meeting of Shareholders for adoption in accordance with the AOA.

Article 68

The ~~controlling~~ shareholders and actual controllers of the Company shall not interfere, in violation of any requirement stipulated by laws, administrative regulations or the AOA, directly or indirectly, in the decision-making process, or the legal operation and management of the Company, or harm the rights and interests of the Company or the other shareholders.

The Company shall not have the following connections with its shareholders (or their associates):

(1) holding shares of the shareholders, unless otherwise permitted by laws, administrative regulations or the CSRC;
(2) conferring improper benef ts to a shareholder by means of purchase of securities held by the shareholder;

(3) allowing illegal appropriation of assets of the Company by shareholders;

(4) engaging in any other actions as prohibited by laws, administrative regulations or the CSRC.

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LETTER FROM THE BOARD

Article 101

Where the General Meeting of Shareholders is convened by the Board of Directors, the Chairman of the Board of Directors shall serve as the chairman and preside the meeting; if the Chairman of the Board of Directors fails to or is unable to perform the duty, the meeting shall be presided over by the Vice Chairman (if there shall be two vice chairmen, the Vice Chairman elected by a majority vote of the directors) of the Board of Directors as the chairman of the meeting; if the Vice Chairman of the Board of Directors fails or is unable to perform the duty, a director elected by a majority vote of the directors shall be the chairman of and preside the meeting…

Article 107

The convener shall ensure that the minutes of a meeting are true, accurate and complete. The minutes shall be signed by attending directors, supervisors, the Secretary to the Board of Directors, the convener or his or her representative, and the chairman of the meeting. The minutes shall be kept for ~~15~~ 20 years, together with the book of signatures of the attending shareholders, the power of attorney for shareholders that attend the meeting by proxy, and effective information concerning voting online or by other such means.

Article 120

The list of candidates for director or supervisor shall be submitted as a proposal for voting by the General Meeting of Shareholders.

The Board of Directors or the Supervisory Committee shall provide shareholders beforehand with the resumes and basic information of the director or supervisor candidates. Shareholders that hold, individually or collectively, more than 3% of the shares in the Company may propose a list of director or supervisor candidates individually or collectively. Three or more directors or supervisors may jointly propose a list of director or supervisor candidates. The Board of Directors and the Supervisory Committee may propose a list of independent director candidates. Shareholders that hold, individually or collectively, more than 1% of the outstanding shares in the Company may propose a list of independent director candidates. While the shareholders shall nominate, separately or jointly, ~~candidates~~ directors for more than half of the members of the Board of Directors, the supervisor ~~candidates~~ nominated by them shall not exceed ~~half~~ one-third of the members of the Supervisory Committee.

…

Article 164

The Board of Directors shall exercise the following functions and powers:

(1) to convene the General Meeting of Shareholders and report its work to the General Meeting of Shareholders;
(2) to report at the annual general meeting and to disclose in the annual report the performance of duties by the directors respectively, including the attendance of Board meetings and votes of the directors during the reporting period;

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LETTER FROM THE BOARD

(3) to implement resolutions of the General Meeting of Shareholders;
( ~~3~~ 4) to decide on the business plans and investment plans of the Company;
( ~~4~~ 5) to formulate the annual budget and the fi nal account of the Company;
( ~~5~~ 6) to formulate the profi t distribution plan and plans for making up losses of the Company;
( ~~6~~ 7) to formulate plans to increase or decrease the registered capital, issue and list bonds or other securities of the Company;
( ~~7~~ 8) to draft plans for any major acquisition of the Company, any purchase of the stock of the Company, or any merger, division, dissolution or changes in the corporate form of the Company;
( ~~8~~ 9) to decide on such matters as the Company’s investments in third parties, purchase and sale of assets, asset mortgages, the provision of security for third parties, entrustment of fi nancial services, connected transactions, etc., to the extent authorized by the General Meeting of Shareholders;
( ~~9~~ 10) to decide on the establishment of the Company’s internal management organization;
(11 ~~0~~ ) to retain or dismiss, and determine the remunerations and awards or punishments to, the President, the Chief Compliance Offi cer and the Secretary to the Board of Directors; according to the nomination by the Chairman of the Board of Directors or the President, retain or dismiss, and determine the remunerations and awards or punishments to, any member of the Executive Committee and the Chief Financial Offi cer;
(1 ~~1~~ 2) to formulate the fundamental management system of the Company;
(1 ~~2~~ 3) to formulate plans to amend this AOA;
(1 ~~3~~ 4) to manage any disclosure of information by the Company;
(1 ~~4~~ 5) to propose to the General Meeting of Shareholders to ~~retain e~~ mploy or dismiss any accounting fi rm that audits the Company;
(1 ~~5~~ 6) to listen to the work report and check the work of the President;
(1 ~~6~~ 7) to formulate the fundamental compliance and management system and other risk control systems for the Company;
(1 ~~7~~ 8) to listen to the work report of the Chief Compliance Offi cer; and
(1 ~~8~~ 9) to perform other duties and powers granted under relevant laws, regulations and rules.

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LETTER FROM THE BOARD

Article 171

The Vice Chairman of the Board of the Company shall assist the Chairman of the Board in his or her work. If the Chairman of the Board is unable to perform his or her duties or fails to perform his or her duties, his or her duties shall be performed by the Vice Chairman (if there shall be two vice chairmen, the Vice Chairman elected by a majority vote of the directors) of the Board ~~as entrusted by the Chairman of the Board~~ ; if the Vice Chairman of the Board is unable or fails to perform these duties, a director elected by at least one half of the directors shall perform such duties.

Article 177

If a director has a connected relationship with an enterprise involved in a matter on which a resolution is to be made at a meeting of the Board of Directors, he or she may not exercise his right to vote regarding such resolution, nor may he or she exercise the voting right of another director as such director’s proxy thereon. Such a Board meeting may be held only if more than one half of the directors without a connected relationship are present, and the resolutions made at such a Board meeting shall require adoption by more than one half of the directors without a connected relationship. The independent directors shall issue independent opinions on the material connected transactions ~~, and if necessary, a report to the agent of the CSRC at the place where the Company’s registered address is or the principal business is~~ . If the Board meeting is attended by less than three directors without a connected relationship, the matter shall be submitted to the General Meeting of Shareholders for consideration.

Article 178

~~The Board of Directors shall approval the resolutions by show of hands. The extraordinary meeting of the Board of Directors may proceed and reach a resolution by means of fax, with the resolution to be signed by the attending directors, provided that all the directors can fully express their opinions. V~~ oting at an onsite meeting of the Board of Directors (including video conference) shall be made by a show of hands or by poll. If a Director participates in the onsite meeting through telephone or similar communication equipment, as long as he/she can make himself/herself heard by the other participating Directors at the meeting and can communicate with them, all participating Directors shall be deemed to be present at the meeting in person. Each Director shall have one vote.

At the meeting of the Board of Directors, a resolution can be considered and resolved by way of voting by correspondence, with the resolution being signed by the participating Directors, provided that all Directors can fully express their opinions. Voting by correspondence shall be made within a prescribed period, Director that has not express his/her view within the prescribed period will be deemed to be abstained from voting.

Resolutions of the Board of Directors with respect to the following matters shall not be approved by way of voting by correspondence:

(1) the prof t distribution plans and plans for making up losses;

(2) the proposals for the increase or reduction of the registered capital;

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LETTER FROM THE BOARD

(3) the proposals for merger, division, dissolution, liquidation or change in the form of the Company;
(4) repurchase of shares of the Company;
(5) other matters as required by applicable laws, administrative regulations, rules and the AOA.

Article 180

The Board of Directors shall make minutes of the resolutions of the Board of Directors on the resolutions on the agenda, which minutes shall be signed by directors that attend the meeting. The minutes of the meeting of the Board of Directors shall be kept for ~~15~~ 20 years as Company fi les. Where a resolution of the Board of Directors is in violation of any laws or regulations or the AOA, bringing serious losses to the Company, the directors that have participated in the resolution shall be liable to the Company. However, if a director is proved to have expressed his opposition to such resolution when it was put to the vote, and such opposition is recorded in the minutes of the meeting, such director may be released from such liability.

Article 181

The minutes of the meeting of the Board of Directors shall include:

(1) the date and venue of the meeting, and the name of the convener;
(2) the names of directors that attend the meeting personally, and the names of directors (proxies) that attend the meeting on behalf of other directors;
(3) the agenda of the meeting;
(4) resolutions of the meeting;
(5) the key points of the speeches of directors; and
( ~~5~~ 6) the voting method and result for each resolution on the agenda (with the voting result to include the number of ballots that vote “FOR”, “AGAINST” or “ABSTAINED”).

Directors and recorder(s) present at the meetings shall sign the minutes.

Article 183

The Risk Management Committee shall be responsible mainly for supervising the overall risk management of the Company and ensuring the risk within a reasonable limit, so that the Company can implement effective risk management plans with respect to all risks in connection with the operation of the Company. The Risk Management Committee shall:

(1) formulate the overall risk management policy for the Board of Directors to review;
(2) defi ne strategic structures and resources for the risk management of the Company, and ensure that they are compatible with the internal risk management policy of the Company;

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LETTER FROM THE BOARD

(3) defi ne the limits of major risks;
(4) review and recommend on the general objectives of compliance, risk management and fundamental policies;
(5) supervise, examine and make recommendation to the Board of Directors on risk management policies; ~~and~~
(6) review and recommend on the establishment and functions of the organization in relation to compliance and risk management;
(7) evaluate and recommend on the risk of major decision making and solutions to the major risks of the Company that need to be reviewed by the Board of Directors;
(8) review and recommend on compliance reports and risk evaluation reports that need to be reviewed by the Board of Directors; and
( ~~5~~ 9) perform other duties assigned by the Board of Directors.

The Board of Directors of the Company shall be responsible for the effectiveness of the compliance management, risk management and internal control systems of the Company.

Article 184

The Audit Committee shall be responsible mainly for controlling the compliance of the operation, management and investment of the Company, and examining and supervising the internal audit and result of the Company. Its main duties shall be to:

(1) supervise over the course of annual audits, and determine the truthfulness, accuracy and completeness of the f nancial information obtained after such audits before submission to the Board of Directors for consideration;
(2) propose to ~~retain e~~ mploy or dismiss the external auditor of the Company, and supervise the practice of external auditors;
( ~~2~~ 3) supervise the internal audit system and its implementation;
( ~~3~~ 4) be responsible for the communications between the internal audit and the external audit;
( ~~4~~ 5) examine and approve the fi nancial information of the Company and its disclosure;
( ~~5~~ 6) examine the internal control system of the Company; and
( ~~6~~ 7) perform other duties assigned by the Board of Directors.

The Audit Committee shall comprise non-executive directors only, and at least half of them shall be independent non-executive directors, includ ~~e~~ ing at least one independent director that is also a professional accountant or has appropriate accounting or relevant f nancial management qualif cations who has been engaged in accounting for over f ve years. ~~and t~~ The meeting of the Audit ~~Meeting~~ Committee shall be convened by an independent director.

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LETTER FROM THE BOARD

Article 187

The main duties of the Nomination Committee shall be to:

(1) study and suggest criteria and procedures for selecting directors and senior management;
(2) search for qualifi ed persons to act as director or senior management on a broad basis;
(3) review and suggest selecting candidates for director and senior management member; and
(4) perform other duties assigned by the Board of Directors.

The meeting of the Nomination Committee shall be convened by an independent director.

Article 222

The Supervisory Committee shall have the power to:

(1) review the regular reports of the Company prepared by the Board of Directors and submit written review opinions thereon; and in case of any doubt, engage the service of an accounting fi rm or a law fi rm to assist in its work, with the cost to be borne by the Company;
(2) check the fi nancial position of the Company;
(3) supervise directors and other senior management members in the discharge of their duties, and request an explanation or propose to dismiss any director or any other senior management member that violates laws, regulations, this AOA or any decision of the General Meeting of Shareholders;
(4) request a director or any other senior management member to correct his or her act that is harmful to the interests of the Company;
(5) request the Board of Directors to rectify when their resolutions are in violation of the requirements of applicable laws, administrative regulations or the CSRC;
(6) propose to hold an extraordinary General Meeting of Shareholders, and convene and chair the General Meeting of Shareholders, if the Board of Directors fails to perform its duty to convene and chair the meeting pursuant to the Company Law;
( ~~6~~ 7) propose a proposal to the General Meeting of Shareholders;
( ~~7~~ 8) bring an action of law against any director or any other senior management member in accordance with Article 151 of the Company Law;
( ~~8~~ 9) check the fi nancial report, the operational report and the profi t distribution plan that the Board of Directors proposes to submit to the General Meeting of Shareholders, and in case of any doubt or any operational abnormality of the Company, start an investigation and if necessary, ~~retain e~~ mploy a certifi ed public accountant, a practicing auditor or a lawyer to assist in his or her work;

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LETTER FROM THE BOARD

( ~~9~~ 10) organize an off-offi ce audit on senior management members; and

(1 ~~0~~ 1) exercise other powers under relevant laws, regulations and rules and this AOA.

Article 223

The Supervisory Committee shall meet at least once every six months, which meeting shall be convened by the Chairman of the Supervisory Committee. A supervisor may propose to hold an extraordinary meeting of the Supervisory Committee.

Voting at an onsite meeting of the Supervisory Committee (including video conference) shall be made by a show of hands or by poll. If a Supervisor participates in the onsite meeting through telephone or similar communication equipment, as long as he/she can make himself/herself heard by the other participanting Supervisors at the meeting and can communicate with them, all participating Supervisors shall be deemed to be present at the meeting in person. Each Supervisor shall have one vote.

At the meeting of Supervisory Committee, a resolution can be considered and resolved by way of voting by correspondence, with the resolution being signed by the participating Supervisors, provided that all Supervisors can fully express their opinions. Voting by correspondence shall be made within a prescribed period, Supervisor that has not express his/her view within the prescribed period will be deemed to be abstained from voting.

Resolutions of the Supervisory Committee with respect to the following matters shall not be approved by way of voting by correspondence:

(1) the annual performance of the Supervisory Committee:

(2) the annual report of the Company;

(3) the prof t distribution plan;

(4) other matters as required by laws, administrative regulations, rules and the AOA.

Article 225

The Supervisory Committee shall record its decisions on the items of the agenda in the minutes of the meeting, the minutes shall truthfully, accurately and completely record the proceedings of the meeting, resolutions, supervisors’ comments and voting results. ~~which~~ The minutes shall be signed by the attending supervisors and the recorders.

The supervisor shall have the right to enter an explanatory note into the minutes with respect to his or her speech at the meeting. The minutes shall be kept for ~~15~~ 20 years as the Company’s fi le.

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LETTER FROM THE BOARD

Appendix 1 to the Articles of Association Rules of Procedure for the General Meeting of Shareholders

Article 17 Paragraph 3

The Board of Directors or the Supervisory Committee shall provide shareholders beforehand with the resumes and basic information of the director or supervisor candidates. Shareholders that hold, individually or collectively, more than 3% of the shares in the Company may propose a list of director or supervisor candidates individually or collectively. Three or more directors or supervisors may jointly propose a list of director or supervisor candidates. The Board of Directors and the Supervisory Committee may propose a list of independent director candidates. Shareholders that hold, individually or collectively, more than 1% of the outstanding shares in the Company may propose a list of independent director candidates. While the shareholders shall nominate, separately or jointly, ~~candidates~~ directors for more than half of the members of the Board of Directors, the supervisor ~~candidates n~~ ominated by them shall not exceed ~~half~~ one-third of the members of the Supervisory Committee.

Article 33

Where the General Meeting of Shareholders is convened by the Board of Directors, the Chairman of the Board of Directors shall serve as the chairman and preside the meeting; if the Chairman of the Board of Directors fails to or is unable to perform the duty, the meeting shall be presided over by the Vice Chairman of the Board of Directors as the chairman of the meeting; if the Vice Chairman (if there shall be two vice chairmen, the Vice Chairman elected by a majority vote of the directors) of the Board of Directors fails or is unable to perform the duty, a director elected by a majority vote of the directors shall be the chairman of and preside the meeting…

Article 65 Paragraph 2

Appendix 2 to the Articles of Association Rules of Procedure for the Board of Directors

Article 6

The meeting of the Board of Directors shall be convened and chaired by the Chairman of the Board of Directors; if the Chairman becomes unable to or fails to perform the duty, the Vice Chairman (if there shall be two vice chairmen, the Vice Chairman elected by a majority vote of the directors) of the Board of Directors may convene and preside over such meeting; if the Vice Chairman of the Board of Directors also becomes unable to or fail to do so, a director elected through a majority vote of all the directors may convene and chair the Board meeting.

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LETTER FROM THE BOARD

Article 14

In principle, the meetings of the Board of Directors shall be held on-site (including video conference). ~~If necessary, and subject to the consent of the convener (chairman) and the sponsor of a proposal, the meetings may be held by video, telephone, fax or email, provided that the directors shall be allowed to fully express their opinions. The meetings may also be held simultaneously onsite and in other modes.~~ If a Director participates in the onsite meeting through telephone or similar communication equipment, as long as he/she can make himself/herself heard by the other participating Directors at the meeting and can communicate with them, all participating Directors shall be deemed to be present at the meeting in person. Each Director shall have one vote.

Resolutions of the Board of Directors with respect to the following matters shall not be approved by way of voting by correspondence:

(1) the prof t distribution plan and plans for making up losses;

(2) the plans for the increase or decrease of the registered capital;

(3) the plans for merger, division, dissolution, liquidation or change in the form of the Company;

(4) repurchase of shares of the Company; and

(5) other matters as required by applicable laws, administrative regulations, rules and the AOA.

Article 19 Paragraph 3

Independent directors shall issue their independent opinions with respect to any substantial related transaction of the Company ~~and where necessary, report it to the local CSRC agency at the place of registration of the Company or at the place of the main off ce of the Company~~ .

Article 20 Paragraph 1

The meeting of the Board of Directors shall prepare complete and true minutes, and the Secretary to the Board of Directors shall carefully note down and sort out the matters discussed at the meeting. The minutes shall be signed by the directors that attend the meeting or participate in the discussion (if the meeting is held by fax), the Secretary of the Board of Directors and the note-taker. The directors that have attended the meeting or participated in the discussion (if the meeting is held by fax) shall have the right to request that their statements at the meeting be recorded in an explanatory note in the minutes. The minutes of the meeting of the Board of Directors, as an important fi le of the Company, shall be kept by the Secretary of Board of Directors for ~~15~~ 20 years and may later be used as substantial evidence on the liabilities of the directors.

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LETTER FROM THE BOARD

Appendix 3 to the Articles of Association Rules of Procedure for the Supervisory Committee

Article 8

In principle, ~~T~~ the meetings of the Supervisory Committee shall be held on-site(including video conference). If a Supervisor participates in the onsite meeting through telephone or similar communication equipment, as long as he/she can make himself/herself heard by the other participating Supervisors at the meeting and can communicate with them, all the participating Supervisors shall be deemed to be present at the meeting in person.

Resolutions of the Supervisory Committee with respect to the following matters shall not be approved by way of voting by correspondence:

(1) the annual performance of the Supervisory Committee;
(2) the annual report of the Company;
(3) the prof t distribution plan;
(4) other matters as required by applicable laws, administrative regulations, rules and the AOA.

~~In the event of an emergency, a meeting of the Supervisory Committee may conduct its voting by correspondence, provided that the convener (chairman of the meeting) shall explain the emergencies to the attending supervisors in detail.~~

Article 15 Paragraph 1

The meeting of the Supervisory Committee shall have minutes, which shall be signed by the supervisors that have attended the meeting or participated in the discussion (if the meeting is held by fax) and the note-taker. The supervisors that have attended the meeting or participated in the discussion (if the meeting is held by fax) shall have the right to request that their statements at the meeting be recorded in an explanatory note in the minutes. The minutes of the meeting of the Supervisory Committee, as an important fi le of the Company, shall be kept by the Secretary of Supervisory Committee for ~~15~~ 20 years and may later be used as substantial evidence on the liabilities of the supervisors.

(The above English version of the amendments to the Articles of Association is the unoffi cial translation of the Chinese version and is for reference only. Should there be any discrepancy between the Chinese and English versions of the Articles of Association, the Chinese version shall prevail.)

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LETTER FROM THE BOARD

5. PROPOSED MANDATE TO REAUTHORIZE THE COMPANY TO ISSUE COMMERCIAL PAPERS

In accordance with the resolution of the 2011 Annual General Meeting of the Company, the resolution of the 1st meeting of the 5th Session of the Board and the Notice of People’s Bank of China on the Issuance of Commercial Papers by CITIC Securities Company Limited (Yin Fa [2012] No. 197) , the Company has actively manage its liabilities by issuing commercial papers. As of 30 September 2013, the Company has issued a total of 13 batches of commercial papers with a total size of RMB61 billion, of which the repayment of RMB9 billion remains outstanding. Considering the issue of commercial papers has become a critical instrument for raising fund to the Company, it is necessary for the Company to issue further commercial papers so as to facilitate the long term and orderly development of its business.

In view of the previous authorization granted by the general meeting and the Board for the Company to issue commercial papers will expire on 19 June 2014, and in consideration of the relatively long period of time required for convening a general meeting of the Company, as well as the regulatory approval, fi ling and other procedures needed to be completed after the general meeting, in order to ensure the relevant fi nancing exercises can be implemented smoothly and to capture the market opportunities promptly, it was proposed to seek a mandate from the EGM to reauthorize the Board or such persons authorized by the Board such power after the expiry of the above authorization.

The Board will present a proposal to the EGM to authorize the Board and to agree the Board to authorize a committee to be formed by the chairman, general manager and persons in charge of fi nance, to determine the terms and plan (including the specifi c scale, maturity period, interest rate, guarantee, means of issue, time of issue, the use of proceeds raised, etc.) for each issue of commercial papers of the Company according to the market condition, funding status of the Company and other actual conditions, subject to the issuance size approved by the regulatory authorities, to oversee the issue and repayment status, etc. of the commercial papers, as well as to complete other relevant matters related to the issue of commercial papers. The above authorization will be valid for a period of fi ve years from the expiry of the previous authorization, i.e. from 20 June 2014 to 19 June 2019.

6. THE EGM

A notice convening the EGM is set out at pages 59 to 62 of this circular. A form of proxy and a reply

slip for the EGM are also enclosed herewith.

If you wish to appoint a proxy to attend the EGM, you are required to complete and return the proxy form in accordance with the instructions printed thereon. For H Shareholders, the proxy form should be returned in person or by post not less than 24 hours before the time appointed for the EGM or any adjournment thereof to the H Share registrar of the Company, Computershare Hong Kong Investor Services Limited; and for A Shareholders, details relating to the procedures for attending the EGM shall be referred to in the announcement published by the Company on the Shanghai Stock Exchange. Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof in person if you so wish.

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LETTER FROM THE BOARD

The address of the board of the directors’ offi ce of the Company is at CITIC Securities Tower, No.48 Liangmaqiao Road, Chaoyang District, Beijing, The PRC, Postal code: 100026 (Tel: (8610) 6083 6030, Fax: (8610) 6083 6031). The address of the H Share registrar of the Company, Computershare Hong Kong Investor Services Limited is at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (Tel: (852) 2862 8555).

CITIC Group and its associates are connected persons of the Company as defi ned under the Hong Kong Listing Rules and accordingly, they will abstain from voting at the EGM in respect of the ordinary resolution to be proposed in relation to the non-exempt continuing connected transactions of the Company. As at the Latest Practicable Date, CITIC Group and its associates directly owned 2,303,963,550 shares of the Company, representing approximately 20.91% of the total issued share capital of the Company. CITIC Group was entitled to control all voting rights in respect of such shares.

To the best knowledge of the Directors and having made all reasonable enquiries, apart from CITIC Group and its associates, no other Shareholder has a material interest in the non-exempt continuing connected transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement and therefore no other Shareholder will be required to abstain from voting on the ordinary resolution to be proposed to approve the terms of the Securities and Financial Products Transactions and Services Framework Agreement, the execution and implementation thereof including the mutual provision of Securities and Financial Services, as well as the proposed caps thereof for the three fi nancial years ending 31 December 2016 at the EGM.

7. VOTES BY WAY OF POLL

According to Rule 13.39(4) of the Hong Kong Listing Rules, any vote of shareholders at a general meeting must be taken by poll. As such, the resolutions set out in the notice of the EGM will be voted on by way of poll. Results of the poll voting will be posted on the website of the Company at www.cs.ecitic.com and on the HKExnews website of the Hong Kong Exchanges and Clearing Limited at www.hkexnews.hk upon conclusion of the EGM.

8. RECOMMENDATION

The Directors consider that the resolutions set out in the notice of the EGM are in the interests of the Company and its Shareholders as a whole and accordingly recommend you to vote in favor of the resolutions set out therein.

Yours faithfully, By order of the Board CITIC Securities Company Limited WANG Dongming Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 6030)

14 October 2013

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular (the “ Circular ”) dated 14 October 2013 of which this letter forms a part. Unless the context requires otherwise, terms defi ned in the Circular shall have the same meanings in this letter.

We have been appointed to advise the Independent Shareholders on whether the terms of the Securities and Financial Products Transactions and Services Framework Agreement, as well as the proposed annual caps for the mutual provision of Securities and Financial Services are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Somerley has been appointed to advise the Independent Board Committee and Independent Shareholders in respect of the terms of the Securities and Financial Products Transactions and Services Framework Agreement, as well as the proposed annual caps for the mutual provision of Securities and Financial Services.

We wish to draw your attention to the letter from the Board set out on pages 5 to 40 of the Circular in relation to the renewal of the Relevant Annual Caps for continuing connected transactions and the letter from Somerley set out on pages 42 to 55 of the Circular in relation to the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps for the mutual provision of the Securities and Financial Services.

Having considered the advice given by Somerley, we are of the opinion that the terms of the Securities and Financial Products Transactions and Services Framework Agreement, as well as the proposed annual caps for the mutual provision of Securities and Financial Services are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned. We also consider that the entering into of the Securities and Financial Products Transactions and Services Framework Agreement (including the proposed annual caps for the mutual provision of Securities and Financial Services) is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee

CITIC Securities Company Limited Wu Xiaoqiu, Lee Kong Wai, Conway, Rao Geping, Wei Benhua Independent Non-executive Directors

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LETTER FROM SOMERLEY

The following is the letter of advice from Somerley Limited to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY LIMITED

20th Floor China Building 29 Queen’s Road Central Hong Kong

14 October 2013

To: the Independent Board Committee and
the Independent Shareholders

Dear Sirs,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders on (i) the terms of the non-exempt continuing connected transactions to be conducted under the Securities and Financial Products Transactions and Services Framework Agreement; and (ii) the proposed annual caps for the mutual provision of Securities and Financial Services (the “ Annual Caps ”) for the three fi nancial years ending 31 December 2016. Details of the Securities and Financial Products Transactions and Services Framework Agreement and the Annual Caps are set out in the “Letter from the Board” contained in the circular of the Company to the Shareholders dated 14 October 2013 (the “ Circular ”), of which this letter forms a part. Capitalised terms used in this letter shall have the same meanings as those defi ned in the Circular unless the context otherwise requires.

As at the Latest Practicable Date, CITIC Group is a substantial shareholder of the Company indirectly holding approximately 20.91% equity interest in the Company. As such, CITIC Group and its associates are connected persons of the Company under Chapter 14A of the Hong Kong Listing Rules. The transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement are of a recurrent nature and expected to occur on a continuing basis in the ordinary and usual course of business of the Group. Therefore, such transactions constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules. As the highest of the applicable percentage ratios under the Hong Kong Listing Rules in respect of the Annual Caps will, on an annual basis, exceed 5%, the entering into of the Securities and Financial Products Transactions and Services Framework Agreement (including the Annual Caps) is subject to the Independent Shareholders’ approval at the EGM under Chapter 14A of the Hong Kong Listing Rules. CITIC Group and its associates shall abstain from voting at the EGM on the resolution approving the Securities and Financial Products Transactions and Services Framework Agreement.

The Independent Board Committee, comprising all of the four independent non-executive Directors, namely Mr. Wu Xiaoqiu, Mr. Lee Kong Wai, Conway, Mr. Rao Geping and Mr. Wei Benhua, has been established to advise the Independent Shareholders as to whether the terms of the Securities and Financial Products Transactions and Services Framework Agreement and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and whether they are in the interests of the Company and

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the Shareholders as a whole. We, Somerley Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in the same regard.

In formulating our opinion, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group and have assumed that they are true, accurate and complete in all material aspects and will remain so up to the time of the EGM. We have also sought and received confi rmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed to us. We have relied on such information and consider that the information we have received is suffi cient for us to reach our advice and recommendation as set out in this letter and to justify our reliance on such information. We have no reason to believe that any material information has been omitted or withheld from us, nor to doubt the truth, accuracy or completeness of the information provided. We have not, however, conducted any independent investigation into the businesses and affairs of the Group, CITIC Group or their respective associates, nor have we carried out any independent verifi cation of the information supplied.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation with regard to the Securities and Financial Products Transactions and Services Framework Agreement and the Annual Caps, we have taken into account the principal factors and reasons set out below:

1. Background of the Securities and Financial Products Transactions and Services Framework Agreement

Introduction

The Group is principally engaged in (i) investment banking business including fi nancial advisory services; (ii) brokerage business consisting of dealing and brokering of securities and futures, and distribution of fi nancial products; (iii) trading business comprising trading and market-making of equity products, fi xed income products and derivatives, margin fi nancing and securities lending business; (iv) provision of asset management services and products; and (v) investment business mainly including private equity investment and strategic principal investment.

CITIC Group, established on 4 October 1979, is one of the largest state-owned conglomerates with over 30 years of operating history in the PRC and operates in both fi nancial and non-fi nancial sectors. Its fi nancial business covers industries and areas including banking, securities, trust, insurance, fund management and asset management, while its non-fi nancial business covers real estate, engineering contracting, resources and energy, infrastructure construction, machinery manufacturing and information technology industry. As at the end of 2012, CITIC Group’s total assets amounted to approximately RMB3,565.7 billion with net assets of approximately RMB235.5 billion, annual operating income of approximately RMB349.8 billion and net profi t of approximately RMB30.16 billion.

In accordance with the PRC laws and regulations, securities, commercial banking, trust and insurance industries in the PRC are separately managed with separate operations and establishments. Subsidiaries and associates of CITIC Group, which are engaged in commercial banking, trust, insurance and futures, are subject to supervision by different regulatory authorities with independent operations and are not allowed to engage in securities business. As such, the Company is the largest investment bank engaging in securities business within the group of CITIC Group.

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LETTER FROM SOMERLEY

On 23 September 2011, the Company and CITIC Group entered into the Existing Securities and Financial Products Transactions and Services Framework Agreement for a term of three years ending 22 September 2014 to govern the securities and fi nancial products transactions and the mutual provision of securities and fi nancial services, setting the relevant annual caps for the three fi nancial years ending 31 December 2013. Subject to the Independent Shareholders’ approval at the EGM, the Company and CITIC Group will enter into the Securities and Financial Products Transactions and Services Framework Agreement for a term of three years (subject to renewal) commencing on 1 January 2014 and ending on 31 December 2016 and set the Annual Caps for the three fi nancial years ending 31 December 2016.

Securities and Financial Products Transactions

Pursuant to the Securities and Financial Products Transactions and Services Framework Agreement, the Group and CITIC Group and its associates agree to conduct Securities and Financial Products Transactions both in the PRC and Hong Kong with each other. Such transactions involve the following:

(i) Products with fi xed income features, including bonds, funds, trusts, wealth management products, asset management plans, assets securitized products, convertible bonds, bond lending and borrowing, structured products, swaps, futures, forwards, options and any other fi nancial products with fi xed income features;
(ii) Fixed income related derivative products, including interest rate and credit derivative products;
(iii) Equity-linked products, including equity derivatives such as equity, funds, trusts and wealth management products;
(iv) Financing transactions among fi nancial institutions with or without guarantees or pledges, including interbank lending and borrowing, repurchase, interbank deposits, usufruct, asset securitization, corporate account overdraft, pledge loans, holding debt certifi cates for each other such as commercial papers, benefi ciary certifi cates, subordinated debts and corporate bonds; and
(v) Other related securities and fi nancial products permitted by the regulatory authority, including futures, foreign exchange, commodities trading and options.

Provision of Securities and Financial Services

Apart from the Securities and Financial Products Transactions, the Group and CITIC Group and its associates also agree to provide Securities and Financial Services to each other pursuant to the Securities and Financial Products Transactions and Services Framework Agreement.

The Securities and Financial Services to be provided by the Group to CITIC Group and its associates include the following:

(i) underwriting and sponsorship services for equity securities, fi xed income products, structure products and other derivative products;
(ii) other investment banking services, including fi nancial advisory services in relation to corporate restructuring and merger and acquisition;

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(iii) brokerage services, including securities and related fi nancial products brokerage services as well as futures brokerage services;
(iv) fi nancial products sales agency services;
(v) entrusted asset management services; and
(vi) other securities and fi nancial advisory and consulting services.

The Securities and Financial Services to be provided by CITIC Group and its associates to the Group include the following:

(i) deposit services, including mainly (a) deposits of cash balances arising from the Group’s business operations; and (b) cash deposits from the Group’s customers;
(ii) sales agency services for the Group’s fi nancial products;
(iii) client deposits management and custody services, including management services provided by the banking subsidiaries of CITIC Group for managing the cash deposits of the Group’s non-fi nancial institutional customers, which are required by the relevant PRC laws and regulations to be deposited into the Group’s account with a PRC bank, and custody services provided by the banking subsidiaries of CITIC Group for securities and fi nancial products issued by the Group;
(iv) loan services, including funds for business operation and loans as working capital of the Group; and
(v) other securities and fi nancial advisory and consulting services, and money brokerage services.

Reasons for, and benefi ts of, entering into of the Securities and Financial Products Transactions and Services Framework Agreement

Given the historical connection and long-term cooperation relationship between the Group and CITIC Group and its associates and the transactions to be conducted under the Securities and Financial Products Transactions and Services Framework Agreement have facilitated and will continue to facilitate the overall business operations and growth of the Group’s business, it is benefi cial to continue the continuing connected transactions by way of entering into of the Securities and Financial Products Transactions and Services Framework Agreement. Also, it is expected that a better understanding of the Company’s operations by CITIC Group and its associates will be further achieved, which in turn will enable them to render more expedient and effi cient services and/ or products provision to the Group when compared to those services and/or products provided by independent third parties.

More importantly, by entering into of the Securities and Financial Products Transactions and Services Framework Agreement, the Group will be able to continue to capitalise on its advantageous position as the largest security-business-arm of CITIC Group, one of the largest state-owned conglomerates in the PRC. Further, potentially enhanced business opportunities for the Group are likely to be resulted from the enormous business scale and rapid development of CITIC Group.

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Having considered the factors above, we concur with the Directors that entering into of the Securities and Financial Products Transactions and Services Framework Agreement is in the interests of the Company and the Shareholders as a whole.

2. Principal terms of the Securities and Financial Products Transactions and Services Framework Agreement

The Securities and Financial Products Transactions and Services Framework Agreement is a master agreement which sets out the principles upon which detailed terms are to be determined in respect of each transaction to be carried out. Relevant member of the Group and of CITIC Group and its associates will then, from time to time and as necessary, enter into separate agreements to provide for the detailed terms of each of the Securities and Financial Products Transactions and provision of Securities and Financial Services.

Transaction principles

The principles governing the Securities and Financial Products Transactions and the provision of Securities and Financial Services include:

(i) the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement shall be conducted in accordance with applicable normal market practices (if any) and on normal commercial terms;
(ii) the signing of the Securities and Financial Products Transactions and Services Framework Agreement has no effect on the Group and CITIC Group in selecting their respective trading parties, or entering into transactions with independent third parties, at their own discretion; and
(iii) in the event that one party under the Securities and Financial Products Transactions and Services Framework Agreement is not able to meet the demand for services/products from the other party, or the terms offered by one party are less favorable than those from independent third parties, the other party has the right to source the services/products from independent third parties.

Pricing basis

Securities and Financial Products Transactions

The Securities and Financial Products Transactions, whether or not conducted through the PRC interbank bond market, shall be conducted at the prevailing market prices or, in the case of fi nancing transactions, prevailing market rates, normally applicable to independent counterparties for the particular type of transactions concerned.

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LETTER FROM SOMERLEY

Provision of the Securities and Financial Services

The pricing principles for the mutual provision of the Securities and Financial Services are as follows:

(i) interest rates offered to the Group for deposits placed with the banking subsidiaries of CITIC Group shall not be lower than the interest rates authorised by the PBOC for the same type of deposits offered by the commercial banks in the PRC during the same period and shall not be lower than the interest rates for the same type of deposits by other customers of such banking subsidiaries of CITIC Group;
(ii) service fees or commission or brokerage charged shall be based on negotiations between the parties with reference to the prevailing market rates and shall be in compliance with the applicable laws and regulations in the PRC.

As disclosed in the “Letter from the Board” in the Circular, the pricing standards/mechanisms for transactions under the Securities and Financial Products Transactions and Services Framework Agreement are in general transparent and subject to strict regulatory supervision and requirements of applicable PRC laws and regulations. In particular, we understand from the Directors that the open market prices/rates of Securities and Financial Products Transactions are highly regulated by the PRC regulatory authorities including the PBOC.

We also understand that the payment terms of transactions conducted under the Securities and Financial Products Transactions and Services Framework Agreement are determined based on the then prevailing market practices at the time of entering into the specifi c transactions. Further, the Directors confi rmed that the Group, when considering the counterparties of the Securities and Financial Services, will take into account all available market offers from independent third parties and those from CITIC Group and its associates and, after considering the offered terms and other factors including the corporate background, creditworthiness and reliability of the counterparties, the most favorable offer to the Group will be taken. Given the transaction principles above, the Group also has the right to source the services/products from independent third parties in the event that the terms offered by CITIC Group and its associates are less favorable than those from independent third parties.

Having taken into account the factors above, including the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement shall be on normal commercial terms and the pricing bases which are determined with reference to prevailing open market prices/rates at the time of transactions, we consider the above principal terms are fair and reasonable.

3. Assessment of the Annual Caps

Securities and Financial Products Transactions

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granted to the Company on 24 September 2013, the No Cap Waiver which waives the Company from strict compliance with the requirement of setting the relevant maximum aggregate annual caps. Please refer to the “Letter from the Board” in the Circular for details on the No Cap Waiver.

Maximum Daily Balance of Deposits

Pursuant to the Hong Kong Listing Rules, the Company is also required to set the cap in respect of the maximum daily balance of deposits, including the deposits of the Group’s proprietary funds and its customers’ funds with the banking subsidiaries of CITIC Group in the PRC and Hong Kong for the three fi nancial years ending 31 December 2016. Given that the Company is required by the relevant PRC regulations to place the cash balance of its customers’ settlement funds with qualifi ed PRC commercial banks, the Company has no control over which PRC bank its customers are to open their accounts, as well as the amounts of such deposits and their withdrawals and changes in the amounts of such deposits for which the Company has no control. In addition, it is extremely diffi cult for the Company to estimate the amount of incoming funds to be deposited with PRC commercial banks, which may include the banking subsidiaries of CITIC Group and its associates, on a daily basis, given that the fi nancial and securities businesses of the Company are highly responsive to the market and may fl uctuate widely within short timeframe. Given the factors above, the Company had applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock Exchange had granted to the Company on 24 September 2013, the No Cap Waiver which waives the Company from strict compliance with the requirement of setting the relevant cap. Please refer to the “Letter from the Board” in the Circular for details on the No Cap Waiver.

Provision of the Securities and Financial Services

Set out below are (i) the historical transaction fi gures in respect of the Securities and Financial Services between the Group and CITIC Group and its associates for the two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013; and (ii) the Annual Caps:

(i) Historical transaction fi gures of the Securities and Financial Services:

Securities and Financial Services	Historical transaction f gures	Historical transaction f gures	Historical transaction f gures
	For the two f nancial years ended 31 December
	2012 and the six months ended 30 June 2013
	2011	2012	30 June 2013
	(RMB million)	(RMB million)	(RMB million)
Revenue derived from provision of
Securities and Financial Services
by the Group to CITIC Group and
its associates	731	753	269
Expenses incurred for Securities
and Financial Services provided
by CITIC Group and its
associates to the Group	62	36	26

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(ii) The Annual Caps:

Securities and Financial Services		The Annual Caps
	For the f nancial year ending 31		December
	2014	2015	2016
	(RMB million)	(RMB million)	(RMB million)
Revenue to be derived from
provision of Securities and
Financial Services by the Group
to CITIC Group and its associates	2,400	2,500	2,800
Expenses to be incurred for
Securities and Financial Services
provided by CITIC Group and
its associates to the Group	1,000	1,100	1,200

Revenue to be derived from provision of Securities and Financial Services by the Group to CITIC Group and its associates

As discussed with the management of the Company, the Annual Caps for the provision of Securities and Financial Services by the Group to CITIC Group and its associates, which are approximately RMB2,400 million, RMB2,500 million and RMB2,800 million for the three fi nancial years ending 31 December 2016 respectively, mainly represent revenue arising from provision of underwriting and sponsorship services, fi nancial advisory services, brokerage services, fi nancial products sales agency services, asset management services and interest on deposits, which are determined with reference to the following key factors:

(i) Revenue from underwriting and sponsorship services

The estimated revenue from the provision of underwriting and sponsorship services has taken into account the potential fund raising exercises to be undertaken by CITIC Group and its associates in the next three fi nancial years such as equity fi nancing, debt fi nancing and initial public offering, in which the Group may act as the underwriter and/or sponsor.

We noted from the Company’s 2013 interim report that there was an upward trend in the equity fi nancing market in the PRC where total funds raised on the A share market increased by approximately 6.11% year-on-year and funds raised by follow-on offerings increased by approximately 57.57% year-on-year. The Company performed quite well even in the ferocious capital market conditions and completed equity lead underwriting projects with a total lead underwriting amount of approximately RMB27,483 million during the fi rst half of 2013, rendering the Group to be ranked fi rst in the market. In addition, the Group has strived to further develop innovative businesses and products, taking an active role to explore into other equity fl ow-based businesses and trying to enhance the comprehensive competitive edge of the Group. In respect of debt fi nancing business, the Group completed 71 transactions in the fi rst half of 2013 with the lead underwriting amount of approximately RMB89,838 million, representing approximately 4.20% of the market share in terms of lead underwriting amount. In respect of private structured fi nancing business, the Group completed 16 projects during the fi rst half of 2013 with an aggregate amount of approximately RMB5,200 million fund raised, and became the frontrunner among domestic securities fi rms. As advised by the management of the Company, it is expected that the Group will utilise its expertise and experience in providing underwriting and sponsorship services in fund raising exercises and provide such services

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to CITIC Group and its associates amid the rapid business growth of them. As such, it is necessary to have a suffi cient annual cap to accommodate the potential growth in underwriting and sponsorship services in the coming years.

(ii) Revenue from fi nancial advisory services

When estimating the revenue from the fi nancial advisory services, the Company has considered, among other things, the expected demand for these kinds of services from CITIC Group and its associates in connection with the potential issuances of various fi nancial products and restructuring and investment plans to be undertaken by them.

In the fi rst half of 2013, the value of merger and acquisition transactions involving Chinese companies amounted to approximately US$116,273 million, representing a year-on-year increase of approximately 39.01%. According to the ranking in terms of the transaction value of mergers and acquisitions involving Chinese companies as compiled by Bloomberg in the fi rst half of 2013, the Company ranked number one among Chinese investment banks, and number six among international investment banks. The Company would continue to strengthen the client network of domestic mergers and acquisitions, and capitalise on business opportunities arising from industry consolidation and fl otation of sizable enterprises. The Company would also strive to arrange major projects for sizable clients and to play a core fi nancial advisory role in transactions which have a more substantial market impact, with a view to further strengthening its advantageous position and to probing further into innovation. In view of (a) the huge potential growth for merger and acquisition transactions in the PRC market; and (b) the Company’s intention to strive to develop itself into a leading brand name in the domestic and international markets, and to develop innovative fi nancial advisory services as a new driver for profi t growth, we concur with the Directors that it is reasonable to set the Annual Caps to accommodate the business opportunity available to the Group regarding the fi nancial advisory services.

(iii) Revenue from brokerage services

The estimated revenue to be generated from the provision of brokerage services is determined with reference to (a) the expected demand for brokerage services associated with the business growth of CITIC Group and its associates; and (b) the recent market commission rates for brokerage services in the industry.

The market condition for brokerage business is improving progressively. The average daily turnover of stock and fund in the PRC A share market was approximately RMB190,919 million in the fi rst half of 2013 which showed a year-on-year increase of approximately 26%. Also, the average commission rate of the industry stabilised at approximately 0.789‰, representing an increase of approximately 2% as compared to the end of 2012, after successive and substantial slides of years. Given the above, we concur with the Directors’ view that it is reasonable to provide for a stablised commission rate but a more aggressive transaction amount when estimating the future brokerage services fees to be derived from CITIC Group and its associates.

(iv) Revenue from fi nancial products sales agency services

As advised, the management of the Company anticipates that the demand for sales agency services associated with the business growth of CITIC Group and its associates will continue to rise rapidly as a result of the increasing cooperation between the Group and CITIC Group and its associates, the expansion of the Group’s business and the launching of innovative businesses by the Group.

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LETTER FROM SOMERLEY

As disclosed in the Company’s 2012 annual report, in addition to its qualifi cation to engage in fund sales agency services, the Company obtained the qualifi cation for sideline insurance agency business in February 2013. It is expected that the fi nancial products sales agency business of the Group will grow further with the newly obtained qualifi cation for new business line, which will facilitate the development of a wider product range. We, therefore, agree with the Directors that it is reasonable to project a high growth rate for the fi nancial products sales agency business as it is still in its developing stage.

(v) Revenue from asset management services

The estimated revenue from the provision of asset management services is determined with reference to (a) the expected demand for asset management services associated with the business growth of CITIC Group and its associates; and (b) the recent rates charged by the Group to the associates of CITIC Group for similar services.

The assets under management of the Group’s asset management business reached approximately RMB250.84 billion for the year ended 31 December 2012, rendering the Group to be ranked fi rst among other industry players. We also note from the Company’s 2013 interim report that there was growing competition in the market for asset management business among mutual funds, securities houses, banks and trust companies. In the fi rst half of 2013, in view of the weak performance of domestic stock market, the Group responded with increased issuances of low-risk bonds and moneymarket products and promotion of bank-tailored limited-scale asset management schemes. The Group managed to record a management fee from asset management business of approximately RMB199.06 million for the six months ended 30 June 2013, representing an increase of approximately 108.20% as compared with the corresponding period of 2012.

In addition, according to the National Bureau of Statistics of China, savings deposits of the PRC residents have been increasing continuously from approximately RMB26,476 billion as at 31 December 2009 to approximately RMB41,020 billion as at 31 December 2012, representing a compound annual growth rate of approximately 15.71%.

Given the recent strong performance of the Group’s asset management business and the continuous increase in the PRC residents’ savings, coupled with the increasing awareness of the concept of wealth management, it is reasonable to expect a further growth in the Group’s asset management business and, on this basis, we agree with the Directors that it is in the interests of the Group and the Independent Shareholders to approve a higher cap for this business sector in spite of intensifying competition.

(vi) Interest on deposits

It represents the interest on deposits of cash balances placed with the banking subsidiaries of CITIC Group. Such deposits mainly arise from the Group’s business operations including cash from operating activities, proceeds from fund raising exercises such as equity and bond issues and the customers’ funds for settlements.

The estimated interest income is determined with reference to (a) the recent interest rates for deposits in the interbank market; (b) the expected increase in interest rates for the next three fi nancial years; (c) the historical interest income generated by depositing the Group’s proprietary cash balances and customers’ funds with the banking subsidiaries of CITIC Group for the two fi nancial years ended 31 December 2012 and the six months ended 30 June 2013; and (d) the potential increase in the

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deposits amount to be placed with the banking subsidiaries of CITIC Group in view of the business expansion of the Group.

Expenses to be incurred for provision of Securities and Financial Services by CITIC Group and its associates to the Group

As discussed with the management of the Company, the Annual Caps for the provision of Securities and Financial Services by CITIC Group and its associates to the Group, which are approximately RMB1,000 million, RMB1,100 million and RMB1,200 million for the three fi nancial years ending 31 December 2016 respectively, mainly represent interest expenses on borrowing and services fees to be incurred for fi nancial products sales agency services, deposits management services and fi nancial advisory services, and are determined with reference to the following key factors:

(i) Interest expenses on borrowings

The banking subsidiaries of CITIC Group will provide fi nancing services to the Group and the estimated relevant interest expenses for such borrowings are determined with reference to (a) the expected intensifi ed demand of fi nancing of the Group in relation to its business development; (b) the recent market interest rates for interbank borrowings, which are close to the benchmark loan interest rates as provided by the PBOC; and (c) the expected increase in future interest rates for the three fi nancial years ending 31 December 2016.

The gearing ratio of the Group increased from approximately 22.19% as at 31 December 2011 to approximately 35.17% as at 31 December 2012, representing an increase of approximately 12.98 percentage points. The Group’s gearing ratio increased further to approximately 47.71% as at 30 June 2013, representing an increase of approximately 12.54 percentage points over a period of six months. Such increases were mainly due to the reason that the Group vigorously developed fl ow-based business by raising funds through various channels, expanding the scale of fi nancing and increasing fi nancial leverage. Therefore, we concur with the view of the Directors that it is reasonable to take into account the potential fi nancing needs of the Group to implement its business expansion plan and the resulting interest expenses when calculating the Annual Caps.

(ii) Fees for fi nancial products sales agency services, deposits management services and fi nancial advisory services

The estimated fees for the fi nancial products sales agency services, deposits management services and fi nancial advisory services to be provided by CITIC Group and its associates are determined with reference to (a) the expected demand for such services associated with the business growth of the Group; (b) the increasing level of business cooperation between the Group and CITIC Group and its associates; (c) the expansion of the Group’s business and the launching of innovative businesses; (d) the potential increase in the demand for deposits management services arising from the expected growth in the Group’s business in the PRC; and (e) the recent rates charged by CITIC Group and its associates to the Group for similar services.

As discussed in the above paragraph headed “Revenue from fi nancial products sales agency services”, we note that the Company obtained the qualifi cation for sideline insurance agency business at the beginning of 2013 and it is expected to offer a larger variety of products and thereby expand its sales agency business. As a result, we concur with the Directors that when calculating the Annual Caps, it is reasonable to take into account the potential resulting increase in business cooperation with CITIC Group and its associates in relation to the sales agency services, given such business relating to the newly obtained qualifi cation is still developing.

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The Company is required by the relevant PRC regulations to place the cash balance of its customers’ settlement funds with qualifi ed PRC commercial banks as discussed above, in view of the expected business growth of the Group, it is necessary to take into account the potential resulting increase in demand for the deposits management services to be provided by CITIC Group and its associates when calculating the Annual Caps.

As discussed with the management of the Company, the fi nancial advisory services to be provided by CITIC Group and its associates are mainly relating to advising on the Group’s fund products and identifying potential merger and acquisition opportunities. An increasing trend for these services is expected given the increasing business cooperation between the Group and CITIC Group and its associates and our understanding of the Group’s business development plan.

4. Level of the Annual Caps

In considering the level of the Annual Caps, we have (i) discussed with the management of the Company various factors in arriving at the Annual Caps, including the actual historical data, fee rates for various Securities and Financial Services and expected business development of the Group; and (ii) reviewed certain implementation agreements for the Securities and Financial Services under the Existing Securities and Financial Products Transactions and Services Framework Agreement and the agreements signed by the Group with independent third parties for similar services. We have also reviewed the prospectus, 2012 annual report and 2013 interim report of the Company.

We understand that the Company is a leading investment bank in the PRC and its business activities are highly subject to the market conditions which are volatile and vulnerable to numerous complicated factors including the global and local economic environment.

We also note that the historical transaction fi gures of revenue derived from provision of Securities and Financial Services by the Group to CITIC Group and its associates for the two fi nancial years ended 31 December 2012 amounted to approximately RMB731 million and RMB753 million respectively, representing utilisation rates of approximately 56.23% and 37.65% over the corresponding annual caps for 2011 and 2012. Likewise, the historical transaction fi gures of expenses incurred for Securities and Financial Services provided by CITIC Group and its associates to the Group for the two fi nancial years ended 31 December 2012 amounted to approximately RMB62 million and RMB36 million respectively, resulting in utilisation rates of approximately 51.67% and 20.00% over the corresponding annual caps for 2011 and 2012. We consider such utilisation rates are relatively low but with reasons. As mentioned above, the Group’s business activities would be correlated with the market conditions which are not typically predictable and subject to vast variety of factors. Given the above, we concur with the Directors that the past utilisation rates are not relevant when considering the Annual Caps.

Instead, more fl exible and accommodating caps are necessary to allow the Group to capture any potential growth. As noted from the Company’s 2012 annual report, the Group is currently in progress of business transformation, where all of the Group’s business lines have been carrying out innovation and strived for the transformation to differentiated competition. Also, the Group is making great efforts in the expansion of the fi xed income businesses in order to further balance the equity and bond businesses. In respect of operation landscape, there is continuous progress of fi nancial liberalisation in the securities industry in the PRC and the regulatory environment is undergoing a fundamental change from the regulatorguided mode to a more market-oriented approach, both of which catered new challenges and opportunities for the Group’s operation. In view of the above, we agree with the Directors that it is in the interests of the Company and the Shareholders as a whole for the Annual Caps to be as accommodating to the Group as possible.

— 53 —

LETTER FROM SOMERLEY

Provided that the pricing for the Securities and Financial Services is fair and reasonable and the conduct of the relevant transactions is subject to annual review by independent non-executive Directors and auditors of the Company (as discussed below) as required under the Hong Kong Listing Rules, it is reasonable for the Group to set the Annual Caps that are fl exible for its future business requirement. Overall, we consider that the Annual Caps have been set by the Company with due care and are fair and reasonable as far as the Independent Shareholders are concerned.

5. Annual review of the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement

Pursuant to Rules 14A.37 to 14A.40 of the Hong Kong Listing Rules, the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement, among other things, are subject to the following annual review and reporting requirements:

(i) each year the independent non-executive Directors must review the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement and confi rm in the annual report and accounts that these transactions have been entered into:
(a) in the ordinary and usual course of business of the Group;
(b) either on normal commercial terms or, if there are not suffi cient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties; and
(c) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
(ii) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Hong Kong Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report), confi rming that the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement:
(a) have received the approval of the Board;
(b) are in accordance with the pricing policies of the Group;
(c) have been entered into in accordance with the relevant agreement governing them; and
(d) have not exceeded the Annual Caps;
(iii) the Company shall allow, and shall procure the relevant counterparties to the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement to allow, the Company’s auditors to have suffi cient access to their records for the purpose of the reporting on these transactions as set out in paragraph (ii);
(iv) the Company shall promptly notify the Hong Kong Stock Exchange and publish an announcement in accordance with the Hong Kong Listing Rules if it knows or has reason to believe that the independent non-executive Directors and/or the auditors of the Company will not be able to confi rm the matters set out in paragraphs (i) and/or (ii) respectively.

— 54 —

LETTER FROM SOMERLEY

The independent non-executive Directors and the auditors of the Company have reviewed, among other things, the transactions conducted under the Existing Securities and Financial Products Transactions and Services Framework Agreement during the two years ended 31 December 2012 and their confi rmations as required under the Hong Kong Listing Rules are contained in the Company’s annual reports for the two years ended 31 December 2011 and 2012. The required confi rmations in respect of the relevant transactions conducted under the Existing Securities and Financial Products Transactions and Services Framework Agreement during the year ending 31 December 2013 will be included (if appropriate) in the Company’s annual report for the year ending 31 December 2013.

In light of the reporting requirements attached to the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement, in particular, (a) the restriction of the values of these transactions by way of the Annual Caps; and (b) the requirement under the Hong Kong Listing Rules for ongoing review by the independent non-executive Directors and the auditors of the Company of the terms of these transactions and the Annual Caps, we are of the view that appropriate measures will be in place to govern the conduct of these transactions and assist in safeguarding the interests of the Independent Shareholders.

OPINION AND RECOMMENDATION

Taking into account the above principal factors and reasons, we consider that the transactions contemplated under the Securities and Financial Products Transactions and Services Framework Agreement would be conducted on normal commercial terms, in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. We also consider that the terms of the Securities and Financial Products Transactions and Services Framework Agreement and the Annual Caps are fair and reasonable. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM.

Yours faithfully, for and on behalf of SOMERLEY LIMITED David Ching Director

— 55 —

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confi rm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at the Latest Practicable Date, the following persons had interests and short positions in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (as defi ned in Part XV of the Securities and Futures Ordinance), which were required, pursuant to Section 352 of the Securities and Futures Ordinance, to be entered into the register referred to therein, or required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of Appendix 10 to the Hong Kong Listing Rules, to be notifi ed to the Company and the Hong Kong Stock Exchange as follows:

					Percentage
					to Total
					Number
					of Shares
				Number	of the
		Nature of	Class of	of Shares	Company
Name	Position	Interest	Shares	(Shares)	(%)
WANG Dongming	Chairman and	Personal Interest	A Shares	2,649,750	0.024%
	Executive Director
CHENG Boming	President and	Personal Interest	A Shares	1,733,160	0.016%
	Executive Director
NI Jun	Chairman of	Personal Interest	A Shares	1,728,363	0.016%
	the Supervisory
	Committee
LEI Yong	Supervisor	Personal Interest	A Shares	483,285	0.004%
YANG Zhenyu	Supervisor	Personal Interest	A Shares	108,000	0.001%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors or senior management of the Company had any interests or short positions: (i) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were deemed or taken to have under such provisions of the SFO) which were required to be notifi ed to the Company and the Hong Kong Stock Exchange; or (ii) which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, required to be notifi ed to the Company and the Hong Kong Stock Exchange.

— 56 —

GENERAL INFORMATION

APPENDIX I

Save for Mr. Ju Weimin, non-executive Director, who is the deputy general manager, chief fi nancial offi cer and secretary to the board of directors of CITIC Limited and Mr. Fang Jun, non-executive Director, who is the general manager of the investment and asset management department of China Life Insurance (Group) Company, as at the Latest Practicable Date, none of the Directors, supervisors or senior management of the Company was a director or an employee of a company which had an interest or a short position in the Shares, underlying Shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

4. DIRECTORS’ INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2012, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was signifi cant in relation to the business of the Group.

5. CONSENT AND QUALIFICATION OF EXPERTS

The following are the qualifi cations of the professional adviser who has given the Company opinions or provided advices referred to or contained in this circular:

Name Qualifi cations

Somerley A corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate fi nance) and Type 9 (asset management) regulated activities under the SFO

As at the Latest Practicable Date, Somerley did not have any direct or indirect shareholding interest in any member of the Group or any right to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Somerley did not have any direct or indirect interest in any assets which had been, since 31 December 2012, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

Somerley has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters and references to its name in the form and context in which they respectively appear.

— 57 —

GENERAL INFORMATION

APPENDIX I

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates had any interests in a business which competes or may compete with the business of the Group.

7. NO MATERIAL ADVERSE CHANGE

The Directors are of the opinion that since 31 December 2012, being the date to which the latest published audited accounts of the Group have been made up, there had been no material adverse changes in the fi nancial or trading position of the Group.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company up to and including 29 November 2013:

(a) the letter dated 14 October 2013 from the Independent Board Committee to the Independent Shareholders in relation to the terms of the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps for the mutual provision of Securities and Financial Services, the text of which is set out on page 41 of this circular;
(b) the letter of advice dated 14 October 2013 from Somerley to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Securities and Financial Products Transactions and Services Framework Agreement and the proposed annual caps for the mutual provision of Securities and Financial Services, the text of which is set out on pages 42 to 55 of this circular;
(c) the written consent of Somerley referred to in paragraph 5 of this Appendix;
(d) the Securities and Financial Products Transactions and Services Framework Agreement; and
(e) the Existing Securities and Financial Products Transactions and Services Framework Agreement.

— 58 —

NOTICE OF THE EGM

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 6030)

NOTICE OF THE EGM

NOTICE IS HEREBY GIVEN that the 2013 Third Extraordinary General Meeting (the “ EGM ”) of CITIC Securities Company Limited (the “ Company ”) will be held at Beijing Room, 3/F, Kempinski Hotel Beijing Lufthansa Center, 50 Liangmaqiao Road, Chaoyang District, Beijing, the PRC at 9:30 a.m. on Friday, 29 November 2013 for the purposes of considering, and if thought fi t, approving the following resolutions. Unless otherwise specifi ed, capitalized terms used in this notice shall have the same meaning as defi ned in the circular of the Company dated 14 October 2013 (the “ Circular ”), a copy of which will be produced to the EGM marked “A” and initialed by the Chairman of the meeting for identifi cation purpose.

ORDINARY RESOLUTIONS

The resolution relating to the non-exempt continuing connected transactions of the Company:

“ THAT :

(a) the terms of the Securities and Financial Products Transactions and Services Framework Agreement (a copy of which has been produced to this meeting marked “B” and initialed by the Chairman of the meeting) and the execution thereof and implementation of the terms thereof including the mutual provision of Securities and Financial Services (including the proposed caps thereof for the three fi nancial years ending 31 December 2016) be and are hereby approved, ratifi ed and confi rmed; and
(b) any one of the Directors or the management of the Company be and is hereby authorized to implement and take all steps and to do all acts and things as may be necessary or desirable to give effect to and implement the terms of the Securities and Financial Products Transactions and Services Framework Agreement including but not limited to the terms relating to the mutual provision of Securities and Financial Services under the Securities and Financial Products Transactions and Services Framework Agreement and other matters contemplated thereunder or ancillary thereto; the submission of the No Cap Waiver to the Hong Kong Stock Exchange; to agree to any amendment or supplement to any of the provisions of the Securities and Financial Products Transactions and Services Framework Agreement, as so required by the relevant regulatory authority(ies), or as such Director or management of the Company may in his/her absolute discretion deem fi t. ”
The resolution relating to the proposed transfer of equity interests in subsidiaries for the launching of designated innovative fi nancial business:

“ THAT :

(a) the Proposed Transfer, the establishment of the Private Fund and the launching of designated innovative fi nancial business be and are hereby approved, ratifi ed and confi rmed;

— 59 —

NOTICE OF THE EGM

(b) upon completion of the Proposed Transfer, the Company be and is hereby authorized to enter into lease contract(s) with the transferee of the Proposed Transfer or its designated entity(ies) to lease the offi ce premises of the Company situated at Beijing CITICS Tower and Shenzhen CITICS Tower at the then prevailing market rates, and the actual rental will be subject to the lease contract(s) to be signed by the parties; and
(c) any one of the Directors or the management of the Company be and is hereby authorized to implement and take all steps and to do all acts and things as may be necessary or desirable to give effect to and/or to complete all matters in connection with the Proposed Transfer, the establishment of the Private Fund, the launching of designated innovative fi nancial business and the lease contract(s), including, without limitation, to obtain all necessary approvals from the relevant PRC government authorities, to carry out all relevant registration and fi ling procedures, and to sign and execute such further documents, or to do any other matters incidental thereto and/or as contemplated thereunder, as such Director or management of the Company may in his/her absolute discretion deem fi t.”

SPECIAL RESOLUTIONS

The resolution relating to the proposed amendments to the Articles of Association:

“ THAT :

(a) subject to the required approval or endorsement from or registration with the relevant regulatory authorities in the PRC, the proposed amendments to the Articles of Association (details of which are set out in the section headed “Proposed Amendments to the Articles of Association” in the letter from the Board contained in the Circular) be and are hereby approved and confi rmed;
(b) any one of the Directors or the management of the Company be and is hereby authorized to implement and take all steps and to do all acts and things as may be necessary or desirable to give effect to the proposed amendments to the Articles of Association, including but not limited to obtain all necessary approvals from the relevant regulatory authorities in the PRC, and to sign and execute such further documents, or to do any other matters incidental thereto and/or as contemplated thereunder, as such Director or management of the Company may in his/her absolute discretion deem fi t; and
(c) any one of the Directors or the management of the Company be and is hereby authorized to make such other modifi cations to the proposed amendments to the Articles of Association as may be required by the relevant regulatory authorities in the PRC.”

— 60 —

NOTICE OF THE EGM

The resolution relating to the proposed mandate to reauthorize the Company to issue commercial papers:

“ THAT :

the Board or a committee as authorized by the Board to be formed by the chairman, general manager and persons in charge of fi nance be and is hereby granted, from 20 June 2014 to 19 June 2019, an unconditional general mandate to determine the terms and plan (including but not limited to the specifi c scale, maturity period, interest rate, guarantee, means of issue, time of issue, use of proceeds raised, etc.) for each issue of commercial papers of the Company according to the market condition, funding status of the Company and other actual conditions, subject to the issuance size approved by the regulatory authorities; to oversee the issue and repayment status, etc. of the commercial papers issued, as well as to implement and take all steps and to do all acts and things as may be necessary or desirable to give effect to and/or complete all other relevant matters related to the issue of commercial papers.”

By order of the Board CITIC Securities Company Limited WANG Dongming Chairman

Beijing, the PRC 14 October 2013

As at the date of this notice, the executive directors of the Company are Mr. WANG Dongming, Mr. CHENG Boming and Mr. YIN Ke; the non-executive directors are Mr. JU Weimin and Mr. FANG Jun; and the independent non-executive directors are Mr. WU Xiaoqiu, Mr. LEE Kong Wai, Conway, Mr. RAO Geping and Mr. WEI Benhua.

Notes:

Details of the above resolutions are set out in the Circular.
According to Rule 13.39(4) of the Hong Kong Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. As such, the resolutions set out in this notice of the EGM will be voted on by way of poll. Results of the poll voting will be posted on the website of the Company at www.cs.ecitic.com and the HKExnews website of Hong Kong Exchanges and Clearing Limited at www.hkexnews.hk after the EGM.
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 on his/her behalf at the meeting. A proxy is not required to be a Shareholder of the Company.
To be valid, the instrument appointing a proxy together with the power of attorney or other authority, if any, under which it is signed or a notarial certifi ed copy of that power of attorney or authority, must be completed and deposited at the Company’s H Shares registrar, Computershare Hong Kong Investor Services Limited (for H Shareholders) not less than 24 hours before the time appointed for holding the EGM or any adjourned meeting thereof; and for A Shareholders, details relating to the procedures for attending the EGM shall be referred to in the announcement published by the Company on the Shanghai Stock Exchange.

The address of the H Share registrar of the Company, Computershare Hong Kong Investor Services Limited, is at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (Tel: (852) 2862 8555).

Completion and return of the proxy form will not preclude any Shareholder from attending and voting at the EGM or any adjournment thereof in person should he so wish.

— 61 —

NOTICE OF THE EGM

In order to determine H Shareholders’ entitlement to attend the EGM, the H Share register of members of the Company will be closed from Tuesday, 29 October 2013 to Friday, 29 November 2013 (both days inclusive), during which period no share transfer will be registered . In order for H Shareholders to be qualifi ed for attending the EGM, all share certifi cates together with the transfer documents must be lodged with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited, at Rooms 1712–1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, at or before 4:30 p.m. on Monday, 28 October 2013 . H Shareholders who are registered with Computershare Hong Kong Investor Services Limited on or before the above date are entitled to attend the forthcoming EGM.
In case of joint Shareholders, if more than one of them attend the EGM, either in person or by proxy, the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of other joint Shareholders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint shareholding.
Shareholders who wish to attend the EGM, whether in person or by proxy, shall return the reply slip for the meeting to the board of the directors’ offi ce of the Company in person, by mail or fax on or before Friday, 8 November 2013. The address of the board of the directors’ offi ce of the Company is at CITIC Securities Tower, No. 48 Liangmaqiao Road, Chaoyang District, Beijing, The PRC, Postal code: 100026 (Tel: (8610) 6083 6030, Fax: (8610) 6083 6031).
The EGM is expected to last for a half day. Shareholders or their proxies attending the meeting shall be responsible for their own travelling and accommodation expenses. Shareholders or their proxies shall produce their identity documents when attending the EGM.

— 62 —

AI assistant

CITIC Securities Company Limited — Proxy Solicitation & Information Statement 2013

50947_rns_2013-10-14_e33175f2-40a7-478c-a07f-730e5d86bb6b.pdf

(1) CONTINUING CONNECTED TRANSACTIONS: RENEWAL OF THE RELEVANT ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS;

(2) PROPOSED TRANSFER OF EQUITY INTERESTS IN SUBSIDIARIES FOR THE LAUNCHING OF DESIGNATED INNOVATIVE FINANCIAL BUSINESS;

(3) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION;

(4) PROPOSED MANDATE TO REAUTHORIZE THE COMPANY TO ISSUE COMMERCIAL PAPERS; AND

NOTICE OF THE EGM

SOMERLEY LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Directors:

Registered offi ce:

Principal place of business in

(1) CONTINUING CONNECTED TRANSACTIONS: RENEWAL OF THE RELEVANT ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS;

(3) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION;

(4) PROPOSED MANDATE TO REAUTHORIZE THE COMPANY TO ISSUE COMMERCIAL PAPERS; AND

NOTICE OF THE EGM

1. INTRODUCTION

2. CONTINUING CONNECTED TRANSACTIONS: RENEWAL OF THE RELEVANT ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS

I. Background

II. The Framework Agreements

A. Securities and Financial Products Transactions and Services Framework Agreement

Pricing Basis

LETTER FROM THE BOARD

Historical Figures

Cash Infl ow

LETTER FROM THE BOARD

Maximum Daily Balance of Deposits

Pricing Basis and Payment Terms

LETTER FROM THE BOARD

Historical Figures

LETTER FROM THE BOARD

B. Miscellaneous Services Framework Agreement

LETTER FROM THE BOARD

Historical Figures

Proposed Annual Caps and Rationale

LETTER FROM THE BOARD

C. Property Leasing Framework Agreement

Historical Figures

Proposed Annual Caps and Rationale

III. Reasons for and benefi ts expected to acquire from the Framework Agreements

IV. Hong Kong Listing Rules Implications

V. General Information

Information on CITIC Group

Information on the Company

3. PROPOSED TRANSFER OF EQUITY INTERESTS IN SUBSIDIARIES FOR THE LAUNCHING OF DESIGNATED INNOVATIVE FINANCIAL BUSINESS

I. Background

II. Basic Information of the Proposed Transfer of Assets

III. Establishment and Basic Information of the Private Fund

LETTER FROM THE BOARD

IV. Purpose of Implementing the Project and its Impact on the Company

V. Hong Kong Listing Rules Implications

4. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

Article 1

Article 58

Article 63

Article 66

Article 68

Article 101

Article 107

Article 120

Article 164

Article 171

Article 177

Article 178

Article 180

Article 181

Article 183

Article 184

Article 187

The meeting of the Nomination Committee shall be convened by an independent director.

Article 222

Article 223

Article 225

Article 17 Paragraph 3

Article 33

CITIC Securities Company Limited Proxy Solicitation & Information Statement 2013