DFZQ - Interim / Quarterly Report 2017

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this announcement, 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 announcement.

(A joint stock company incorporated in the People’s Republic of China with limited liability under the Chinese corporate name “ 東方證券股份有限公司 ” and carrying on business in Hong Kong as “ 東方證券 ” (in Chinese) and “DFZQ” (in English))

(Stock Code: 03958)

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2017

The board of directors (the “ Board ”) of 東方證券股份有限公司 (the “ Company ”) hereby announces the unaudited interim results of the Company and its subsidiaries for the six months ended 30 June 2017. This announcement, containing the full text of the 2017 interim report of the Company, complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in relation to information to accompany preliminary announcements of interim results.

PUBLICATION OF INTERIM RESULTS ANNOUNCEMENT AND INTERIM REPORT

This results announcement will be published on the website of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk) and the Company’s website (www.dfzq.com.cn).

The Company’s 2017 interim report will be despatched to holders of H shares and published on the websites of the Company and The Stock Exchange of Hong Kong Limited in due course.

By order of the Board of Directors PAN Xinjun Chairman

Shanghai, PRC August 27, 2017

As at the date of this announcement, the Board of Directors comprises Mr. PAN Xinjun and Mr. JIN Wenzhong as executive Directors; Mr. WU Jianxiong, Mr. ZHANG Qian, Mr. WU Junhao, Mr. CHEN Bin, Mr. LI Xiang, Mr. XU Jianguo, Ms. HUANG Laifang and Mr. ZHOU Yao as non-executive Directors; and Mr. LI Zhiqiang, Mr. XU Guoxiang, Mr. TAO Xiuming, Mr. WEI Anning and Mr. XU Zhiming as independent nonexecutive Directors.

Important Notice

I. The Board of Directors, the supervisory committee of the Company and its directors, supervisors and senior management warrant that the information contained herein is true, accurate and complete and there are no false representations, misleading statements contained in or material omissions from this interim report, and severally and jointly accept legal liability.

II. This report has been approved in the 33rd meeting of the 3rd session of the Board of the Company.

Position of absent director	Name of absent director	Reason for being absent	Name ofproxy
Executive director	Jin Wenzhong	Due to official affairs	Pan Xinjun
Non-executive director	Chen Bin	Due to official affairs	Pan Xinjun
Non-executive director	Zhou Yao	Due to official affairs	Wu Junhao
Independent non-executive	Wei Anning	Due to official affairs	Xu Guoxiang
director

There was no objection from the Directors or supervisors to this report.

III. The 2017 interim financial report of the Company, prepared in accordance with the International Financial Reporting Standards (“IFRS”), was reviewed by Deloitte Touche Tohmatsu. Unless otherwise stated, all information is denominated in RMB.
IV. Mr. Pan Xinjun, the chairman of the Company, and Mr. Zhang Jianhui, the accounting chief and person-in-charge of the accounting department (head of the accounting department), warrant the truthfulness, accuracy and completeness of the financial report set out in the interim report.
V. The profit distribution proposal or proposal on transfer of capital reserve fund into share capital for the Reporting Period reviewed by the Board The Company did not propose any profit distribution proposal or proposal on transfer of capital reserve into share capital during the first half of 2017.
VI. Risk statement for forward-looking statements

Forward-looking statements, including future plans and development strategies, may be contained in this report. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Neither the Company nor any of its subsidiaries undertake any obligation to publicly update or revise any forwardlooking statement as a result of new information. Investors are advised to pay attention to such investment risks involved and not place undue reliance on forward-looking statements.

VII. Were there any non-operational funds appropriated by controlling shareholders and their related parties? No
VIII. Did the Company provide third-party guarantees in violation of the decision-making procedures? No

IX. Material Risk Warnings

The business of the Company is highly dependent on economic and market conditions in China and other jurisdictions where it operates. General economic and political conditions, such as macroeconomic and monetary policies, laws and regulations on the financial and securities industries, upward and downward trends in the market, business and financial sectors, currency and interest rate fluctuations, availability of short-term and long-term market funding sources and financing cost, could affect the business of the Company. As a securities firm, the business of the Company is directly affected by the inherent risks associated with the securities markets, including market volatility, changes in investment sentiment, fluctuations in trading volume, liquidity changes, and the creditworthiness or the

DFZQ Interim Report 2017

Important Notice

perceived creditworthiness of the securities industry in the marketplace. Downturns in general economic conditions and adverse market conditions could materially and adversely affect the Company’s business, results of operations, financial conditions and prospects in various ways, for example, the demand of its clients for securities trading could decrease, resulting in a decline in its revenue from the securities brokerage; the value and returns on financial assets the Company holds for securities trading and investment and the value of investment portfolio for the asset management products of the Company may be adversely affected by market volatility; the Company may face increased default risks that a client or counterparty may fail to perform his contractual obligations; the financing cost of the Company may increase due to the limited access to liquidity and the capital markets, and therefore restricting its ability to raise funds to develop its business; the Company may not be able to effectively implement its business plans and strategies.

In addition to the extensive competition in the securities industry in the PRC, the Company also faces intense competition from other financial institutions, such as commercial banks, fund management companies, insurance companies, trust companies, futures companies and asset management companies. Some of the competitors of the Company may have certain competitive advantages over it, including greater financial resources, stronger brand recognition, broader product and service offerings and wider branch network coverage. Failure by the Company to effectively compete may have a material and adverse effect on the Company’s business, financial conditions, results of operations and prospects.

The Company relies on banks and other external financing channels and bond issuances to fund a significant portion of its working capital requirements. The financial conditions, liquidity and business operations of the Company will be adversely affected to the extent the Company is not able to service or repay its debt in a timely manner due to lack or unavailability of internal resources or inability to obtain alternative financing. Even if the Company is able to meet its debt service obligations, the amount of debt the Company borrows could also adversely affect it in a number of ways, for example, limiting the ability of the Company to obtain any necessary financing in the future for working capital, strategic investment, debt service requirement, or other purposes; limiting the flexibility of the Company in planning for, or reacting to, changes in its business; placing the Company at a competitive disadvantage relative to its competitors who have lower levels of debt; affecting the credit ratings of the Company and increasing its financial cost; making the Company more vulnerable to a downturn in its business or the economy generally; subjecting the Company to the risk of being forced to refinance at higher interest rates.

The Company has described the risks such as market risk and credit risk in detail in this report. Please refer to the contents of the Potential Risks and Prevention Measures under the Discussion and Analysis on the Company’s Future Development in the section entitled Discussion and Analysis on Operations for details.

Ⅹ. Others

Chinese and English versions of this report are provided by the Company. In the event of any discrepancy between the Chinese and English versions, the Chinese shall prevail.

Unless otherwise specified, the analysis and explanation provided in this report are all based on the consolidated accounting statement.

Interim Report 2017 DFZQ

Section I Definitions

In this report, unless the context otherwise requires, the following terms shall have the following meanings:	In this report, unless the context otherwise requires, the following terms shall have the following meanings:
Definitions of the frequently used terms
“A Share(s)”	the domestic shares of the Company with a nominal value of RMB1 each, which
	are listed and traded on the SSE
“Articles of Association”	the articles of association of東方證券股份有限公司
“BDO”	BDO China Shu Lun Pan Certified Public Accountants LLP (Special General
	Partnership)
“Board” or “Board of Directors”	the board of directors of DFZQ
“China” or “PRC”	the People’s Republic of China, excluding, for the purpose of this report, Hong
	Kong, the Special Administrative Region of Macau and Taiwan
“China Universal”	China Universal Asset Management Company Limited (匯添富基金管理股份有限
	公司), an investee company of the Company
“Citi Orient”	Citi Orient Securities Co., Ltd. (東方花旗證券有限公司), a controlling subsidiary
	of the Company
“Company” or “the Company” or	東方證券股份有限公司
“Parent Company” or “DFZQ”
“Corporate Governance Code”	the Corporate Governance Code and Corporate Governance Report set out in
	Appendix 14 to the Hong Kong Listing Rules
“CSRC”	the China Securities Regulatory Commission
“Group” or “the Group” or “We”	東方證券股份有限公司 and its subsidiaries
“H Share(s)”	the ordinary shares of the Company with a nominal value of RMB1 each, which
	are listed and traded in Hong Kong dollars on the Hong Kong Stock Exchange
“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
DFZQ Interim Report 2017

DFZQ Interim Report 2017

Section I Definitions

“Hong Kong”	the Special Administrative Region of Hong Kong of the PRC
“IPO”	Initial Public Offering
“Model Code”	the Model Code for Securities Transactions by Directors of Listed Issuers set
	out in Appendix 10 to the Hong Kong Listing Rules
“NSSF”	the National Council for Social Security Fund of the PRC
“Orient Hong Kong”	Orient Finance Holdings (Hong Kong) Limited (東方金融控股(香港)有限公司), a
	wholly owned subsidiary of the Company
“Orient Securities Asset Management”	Shanghai Orient Securities Asset Management Co., Ltd. (上海東方證券資產管理
	有限公司), a wholly-owned subsidiary of the Company
“Orient Securities Capital Investment”	Shanghai Orient Securities Capital Investment Co., Ltd. (上海東方證券資本投資
	有限公司), a wholly-owned subsidiary of the Company
“Orient Securities Futures”	Shanghai Orient Securities Futures Co., Ltd. (上海東證期貨有限公司), a wholly
	owned subsidiary of the Company
“Orient Securities Innovation	Shanghai Orient Securities Innovation Investment Co., Ltd. (上海東方證券創新投
Investment”	資有限公司), a wholly-owned subsidiary of the Company
“Reporting Period”	January 1, 2017 to June 30, 2017
RMB, RMB’000, RMB’0000,	Renminbi Yuan, Renminbi ’000, Renminbi ’0000, Renminbi 100 million (unless
RMB100 million	otherwise specified)
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shanghai Bureau of the CSRC”	the Shanghai Securities Regulatory Bureau of the China Securities Regulatory
	Commission
“Shanghai Haiyan Investment”	Shanghai Haiyan Investment Management Company Limited (上海海煙投資管
	理有限公司)

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Interim Report 2017 DFZQ

Section I Definitions

“Shenergy Group”	Shenergy (Group) Company Limited (申能(集團)有限公司)
“Shenzhen Stock Exchange”	Shenzhen Stock Exchange
“SSE”	Shanghai Stock Exchange
“SSE Composite Index”	Shanghai Stock Exchange Composite Index
“SZSE Component Index”	Shenzhen Stock Exchange Component Index

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DFZQ Interim Report 2017

Section II Company Profile and Key Financial Indicators

I. COMPANY INFORMATION

Chinese name of the Company 東方證券股份有限公司 Chinese abbreviation of the Company 東方證券 English name of the Company ORIENT SECURITIES COMPANY LIMITED English abbreviation of the Company DFZQ Legal representative of the Company Pan Xinjun General manager of the Company Jin Wenzhong Authorized representatives of the Company Pan Xinjun, Jin Wenzhong Joint company secretaries Yang Yucheng, Leung Wing Han Sharon

Registered capital and net capital of the Company

Unit: RMB

As at the end of this As at the end of Reporting Period last year Registered capital 6,215,452,011.00 6,215,452,011.00 Net capital 35,250,682,566.68 33,890,090,462.99

Each individual business qualification of the Company

No. Name of business qualification Approval authority and approval number 1 Permit to operate securities and futures business CSRC (No.: 913100001322947763) 2 Entry qualification for national inter-bank lending Monetary Policy Department of the People’s Bank market and bonds market to conduct lending, bonds of China (Yin Huo Zheng [2000] No. 108)
2 Entry qualification for national inter-bank lending market and bonds market to conduct lending, bonds purchase, spot transaction of bonds and bonds repurchase business
3 Qualification for conducting online securities CSRC (Zheng Jian Xin Xi Zi [2001] No. 8) commissioning
4 Qualification for conducting distribution business of CSRC (Zheng Jian Ji Jin Zi [2004] No. 50) open-ended securities investment funds
5 Qualification for conducting SSE Fund Connect SSE Membership Department (SSE [2005]) business
6 Qualification for conducting underwriting business People’s Bank of China (Yin Fa [2005] No. 275) of short term financing bills
7 Pilot securities companies conducting relevant Securities Association of China (Review Notice No. innovative businesses 2 on Securities Companies Engaging in Innovation Businesses Issued by Securities Association of China)

Interim Report 2017 DFZQ

Section II Company Profile and Key Financial Indicators

No.	Name of businessqualification	Name of businessqualification	Approval authority and approval number
8	Qualification for conducting share transfer agency		Securities Association of China (Zhong Zheng Xie
	business		Han [2006] No. 158)
9	Qualification for conducting quotation and transfer		Securities Association of China (Zhong Zheng Xie
	business		Han [2006] No. 173)
10	Dealer qualification for Integrated Electronic Platform		SSE (Shang Zheng Hui Zi [2007] No. 45)
	of Fixed-income Securities of SSE
11	Approval of brokerage business qualification on		CSRC (Zheng Jian Qi Huo Zi [2007] No. 351)
	financial	futures
12	Qualification of Type A clearing participants of China		China Securities Depository and Clearing Corporation
	Securities Depository and Clearing Corporation		Limited (Zhong Guo Jie Suan Han Zi [2008] No. 25)
	Limited
13	Qualification for clearing business of financial		CSRC (Zheng Jian Xu Ke [2008] No. 684)
	futures transaction
14	Qualification for trial operation of direct investment		CSRC (Ji Gou Bu Bu Han [2009] No. 475)
	business
15	Qualification for provision of intermediary and		CSRC (Hu Zheng Jian Ji Gou Zi [2010] No. 132)
	referral services to futures companies
16	Establishment of wholly-owned subsidiary, Shanghai		CSRC (Zheng Jian Xu Ke [2010] No. 518)
	Orient Securities Asset Management Co., Ltd.
	and qualification for conducting securities assets
	management business
17	Qualification for conducting margin financing and		CSRC (Zheng Jian Xu Ke [2010] No. 764)
	securities lending business
18	Type 1 Licence – Dealing in securities		Securities and Futures Commission of Hong Kong
	Type 4 Licence – Advising on securities		(CE No. AVD362)
19	Type 9 Licence – Asset management		Securities and Futures Commission of Hong Kong
			(CE No. AVH864)
20	Qualification for implementation of the securities		CSRC (Hu Zheng Jian Ji Gou Zi [2010] No. 514)
	broker system
21	Type 2 Licence – Dealing in futures contracts		Securities and Futures Commission of Hong Kong
			(CE No. AWD036)
22	Establishment of Citi Orient Securities Co., Ltd.,		CSRC (Zheng Jian Xu Ke [2011] No. 2136)
	qualification for conducting investment banking
	business
23	Qualification for trial operation of dealer-quoted		CSRC (Ji Gou Bu Bu Han [2012] No. 20)
	collateralized bond repurchase business
24	Qualification for provision of integrated services to		China Insurance Regulatory Commission
	insurance institutional investors		(Zi Jin Bu Han [2012] No. 4)
Interim	Report 2017

DFZQ Interim Report 2017

Section II Company Profile and Key Financial Indicators

	No. Name of businessqualification Approval authority and approval number

Section II Company Profile and Key Financial Indicators

No.	Name of businessqualification	Approval authority and approval number
42	Qualification for conducting securities underwriting	Shanghai Bureau of the CSRC (Hu Zheng Jian Xu
	business (limited to government bonds, financial	Ke [2013] No. 265)
	bonds of policy banks, short-term financing bills
	and medium-term notes)
43	Permit to operate securities and futures business	CSRC (No.: 91310000555998513B)
44	Qualification for brokerage business of marketable	Shanghai Bureau of State Administration of
	securities in foreign currencies	Foreign Exchange (Shang Hai Hui Fu [2014]
		No. 15)
45	License of Securities Business in Foreign Currency	State Administration of Foreign Exchange
		(SC201102)
46	Qualification for conducting market maker business	National Equities Exchange and Quotations Co., Ltd.
	in NEEQ as host broker	(Gu Zhuan Xi Tong Gong Gao [2014] No. 54, Gu
		Zhuan Xi Tong Han [2014] No.707)
47	Qualification of first batch of quotation and service	China Securities Capital Market Development
	participants of private fund products trading	Monitoring Centre Company Limited (List of
	between companies	Participants of Quotation System [First Batch])
48	Type 6 Licence – Advising on corporate finance	Securities and Futures Commission of Hong Kong
		(CE No. BDN128)
49	Permit to conduct Shanghai-Hong Kong Stock	SSE (Shang Zheng Han [2014] No. 626)
	Connect business
50	Qualification for pilot OTC market business	Securities Association of China (Zhong Zheng Xie
		Han [2014] No. 632)
51	Qualification for pilot proprietary business of gold	CSRC (Ji Jin Ji Gou Jian Guan Bu Bu Han [2014]
	spot contract	No. 1876)
52	Pilot online securities business	Securities Association of China (Announcement
		on List of Securities Companies Conducting Pilot
		Online Securities Business (No. 3))
53	Qualification for underwriting business of debt	National Association of Financial Market Institutional
	financing instruments of non-financial institutions	Investors (Announcement of National Association of
		Financial Market Institutional Investors [2014] No.
		16)
54	Qualification of options transaction participants	SSE (Shang Zheng Han [2015] No. 61)
	of SSE and permit to operate stock and options	China Securities Depository and Clearing Corporation
	brokerage and proprietary business and qualification	Limited (Zhong Guo Jie Suan Han Zi [2015] No. 11)
	for options clearing business

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DFZQ Interim Report 2017

Section II Company Profile and Key Financial Indicators

No.	Name of businessqualification	Approval authority and approval number
55	Qualification for conducting transfer and deposit	China Securities Investor Protection Fund
	service of clients’ deposits	Corporation (Zheng Bao Han [2015] No. 67)
56	Qualification for stock and options market making	CSRC (Zheng Jian Xu Ke [2015] No. 163)
	business
57	Qualification of general market maker for SSE 50	SSE (Shang Zheng Han [2015] No. 433)
	ETF Options
58	Qualification for conducting quotation business	National Association of Financial Market Institutional
	for debt financing instruments of non-financial	Investors (Zhong Shi Xie Bei [2015] No. 32)
	institutions
59	Qualification for sales of securities investment fund	Shanghai Bureau of the CSRC (Hu Zheng Jian Xu
		Ke [2015] No. 61)
60	Qualification for company conducting pilot market	China Securities Internet System Co., Ltd.
	making business for quotation system
61	Permit to operate securities business, with business	CSRC (No.: 13790000)
	scope of underwriting and sponsoring of securities
	(excluding government bonds, financial bonds of
	policy banks, short-term financing bills and medium-
	term notes)
62	Qualification for funds sales business	CSRC (No.: 000000519)
63	Contractor of service in relation to private equity	Asset Management Association of China
	fund business
64	Qualification for issue of short-term financing bills	CSRC (Ji Gou Bu Han [2015] No. 3337)
65	License of Money Lenders	Eastern Magistrates’ Courts of Hong Kong
		(No. 0066/2017)
66	Permit to conduct Southbound Trading business	Shenzhen Stock Exchange (Shen Zheng Hui [2016]
	under the Shenzhen-Hong Kong Stock Connect	No. 326)
67	Qualification for inter-bank Gold Price Asking	Shanghai Gold Exchange (Shang Jin Jiao Fa [2017]
	Transactions	No. 81)
68	Qualification of options transaction participants of	SEE (Shang Zheng Han [2017] No. 165)
	SEE

In addition, the Company is a member of the Securities Association of China, SSE, Shenzhen Stock Exchange, National Debt Association of China and Shanghai Gold Exchange. It is also a clearing participant of China Securities Depository and Clearing Corporation Limited and a member of the Asset Management Association of China.

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Interim Report 2017 DFZQ

Section II Company Profile and Key Financial Indicators

II. CONTACT PERSONS AND CONTACT METHODS

Secretary to the Board Representative of securities affairs Name Wang Rufu Li Tingting Correspondence 23/F, Building 2, No. 318 Zhongshan South 23/F, Building 2, No. 318 Zhongshan South address Road, Shanghai, the PRC Road, Shanghai, the PRC Tel +86-021-63325888 +86-021-63325888 Fax +86-021-63326010 +86-021-63326010 E-mail [email protected] [email protected]

III. CHANGES IN BASIC COMPANY INFORMATION

Registered address 22/F, 23/F and 25-29/F, Building 2, No. 318 Zhongshan South Road, Huangpu District, Shanghai, the PRC Postal code of registered address 200010 Business address 13/F, 21-23/F, 25-29/F, 32/F, 36/F, 39/F and 40/F, Building 2, No. 318 Zhongshan South Road, Huangpu District, Shanghai, the PRC Postal code of business address 200010 Place of business in Hong Kong 28-29/F, 100 Queen’s Road Central, Central, Hong Kong Internet website www.dfzq.com.cn E-mail [email protected]

IV. CHANGES IN INFORMATION DISCLOSURE AND PLACE FOR INSPECTION

Newspapers designated by the Company for information disclosure

Website designated by CSRC for publication of interim reports Website designated by the Hong Kong Stock Exchange for publication of interim reports Place where the interim reports of the Company are available

China Securities Journal, Shanghai Securities News, Securities Times, Securities Daily

www.sse.com.cn

www.hkexnews.hk

23/F, Building 2, No. 318 Zhongshan South Road, Huangpu District, Shanghai, the PRC

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DFZQ Interim Report 2017

Section II Company Profile and Key Financial Indicators

V. BRIEF INFORMATION ON SHARES OF THE COMPANY

	Stock exchange on which
Type of shares	shares are listed	Stock abbreviation	Stock code
A Shares	SSE	DFZQ	600958
H Shares	Hong Kong Stock Exchange	DFZQ	03958

VI. OTHER RELEVANT INFORMATION

Domestic accounting firm appointed by	Name	Deloitte Touche Tohmatsu Certified Public	Deloitte Touche Tohmatsu Certified Public
the Company		Accountants LLP
	Office address	30/F, 222 Yan An	Road East, Huangpu
		District, Shanghai, the PRC
	Name of the signing	Ma Qinghui, Shi Man
	accountants
Overseas accounting firm appointed by	Name	Deloitte Touche Tohmatsu
the Company	Office address	35/F, One Pacific Place, No. 88 Queensway,
		Hong Kong
	Name of the signing	Ma Qinghui
	accountants
Sponsor performing continuous	Name	Everbright Securities Company Limited
supervisory duty during the Reporting	Office address	No. 1508 Xinzha Road, Jing’an District,
Period		Shanghai, the PRC
	Name of the signing	Zhou Ping, Yu Jian
	sponsor
	representatives
	Period of continuous	March 23, 2015 to April 18, 2017
	supervision
	Name	Guotai Junan Securities Co., Ltd.
	Office address	No. 618 Shangcheng	Road, China (Shanghai)
		Pilot Free Trade Zone
	Name of the signing	Miao Tao, Jin Licheng
	sponsor
	representatives
	Period of continuous	April 19, 2017 to December 31, 2017
	supervision
		Interim Report 2017 DFZQ

Section II Company Profile and Key Financial Indicators

Name Citi Orient Securities Co., Ltd. Office address 24/F, Building 2, No. 318 Zhongshan South Road, Huangpu District, Shanghai, the PRC Name of the signing Su Yuexing, Sun Xiaoqing sponsor representatives Period of continuous April 19, 2017 to December 31, 2017 supervision Chief Risk Officer and Compliance Yang Bin Controller Legal Advisor to the Company as to Grandall Law Firm (Shanghai) the PRC law Legal Advisor to the Company as to Clifford Chance Hong Kong law Compliance Advisor Anglo Chinese Corporate Finance, Limited A Share Registrar Shanghai Branch of China Securities Depository and Clearing Corporation Limited H Share Registrar Computershare Hong Kong Investor Services Limited

Note: On April 14, 2017, the Company held the first Extraordinary General Meeting of 2017, the first A Shares Class Meeting of 2017 and the first H Shares Class Meeting of 2017 to consider and approve the resolutions such as “The resolution in relation to the proposed non-public issuance of A shares by the Company”. On April 19, 2017, the Company entered into an agreement with Guotai Junan Securities Co., Ltd. (“GTJA”) and Citi Orient, pursuant to which, GTJA and Citi Orient would be the sponsors of the non-public issuance of A shares by the Company. Accordingly, the sponsorship agreement for Initial Public Offerings and Listing of Shares (between Everbright Securities Company Limited (“Everbright Securities”) and the Company dated March 29, 2012) was terminated at the same date of entering into the new sponsorship agreement, since the Company has appointed new Sponsors for re-applying of the issuing of new shares. Therefore, the unfinished continuous supervision work of Everbright Securities would be taken over by GTJA and Citi Orient.

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DFZQ Interim Report 2017

Section II Company Profile and Key Financial Indicators

VII. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE COMPANY

(I) Key Accounting Data

(Unless otherwise indicated, all accounting data and financial indicators set out in this report are prepared in accordance with IFRS.)

		Change
From January	From January	compared with
Items to June 2017	to June 2016	previousperiod
Operating results(RMB’000) Revenue and other income 7,701,597	5,749,448	33.95%
Profit before income tax 2,182,277	1,560,604	39.84%
Profit of the period attributable to shareholders of the Company 1,755,242	1,283,432	36.76%
Net cash used in operating activities (14,113,351)	(375,185)	N/A
Earnings per share(RMB/share) Basic earnings per share 0.28	0.24	16.67%
Diluted earnings per share 0.28	0.24	16.67%
Indicator of profitability		Increase by
		0.56 percentage
Weighted average returns on net assets 4.27%	3.71%	points
		Changes as at
		the end of the
	As at	Reporting Period
As at	December 31,	over the previous
Items June 30, 2017	2016	year(%)
Indicators of scale(RMB’000) Total assets 212,457,124	212,411,087	0.02%
Total liabilities 171,088,739	171,473,262	-0.22%
Accounts payable to brokerage clients 29,403,782	35,651,787	-17.53%
Equity attributable to owners of the Company 40,872,783	40,482,898	0.96%
Total share capital(‘000) 6,215,452	6,215,452	0.00%
Net assets per share attributable to owners of the Company(RMB/share) 6.58	6.51	1.08%
		Increase by
		0.64 percentage
Gearing ratioNote 77.40%	76.76%	points

Note: Gearing ratio = (Total liabilities – Accounts payable to brokerage clients – Funds payable to securities issuers)/ (Total assets – Accounts payable to brokerage clients – Funds payable to securities issuers)

Interim Report 2017 DFZQ

Section II Company Profile and Key Financial Indicators

(II) Description of Key Financial Data

During the Reporting Period, while maintaining sound operation and adhering to the bottom line of compliance, the Company grasped the market opportunities precisely to constantly improve its income level and made big breakthroughs in its primary business such as securities investment and asset management, achieving good operating results. Revenue and other income and net profit attributable to owners of the Company in the first half of 2017 increased by 33.95% and 36.76% as compared with the corresponding period of last year, respectively.

(III) Net Capital and Risk Control Indicators of the Company

As at the end of the Reporting Period, net capital of the Company was RMB35.251 billion, increased by RMB1.361 billion or 4.01% from RMB33.890 billion at the beginning of the year. During the Reporting Period, major risk control indicators of the Company, including net capital, were in compliance with the standards as stipulated in the Administrative Measures of Risk Control Indicators for Securities Companies. Major risk control indicators of the Company as at the end of the Reporting Period, including net capital, were set out as follows:

Unit: RMB’000

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||||
|---|---|---|
|As of the end|
|of the|As of the end|
|Items|Reporting Period|of last year|
|Net capital|35,250,682.57|33,890,090.46|
|Net assets|38,530,727.88|38,530,671.53|
|Risk coverage rate (%)|231.45|221.73|
|Capital gearing ratio (%)|14.99|16.06|
|Liquidity coverage ratio (%)|233.43|190.68|
|Stable funding ratio (%)|123.73|112.44|
|Net capital/net assets (%)|91.49|87.96|
|Net capital/liabilities (%)|27.37|27.62|
|Net assets/liabilities (%)|29.92|31.40|
|Proprietary equity-based securities and securities derivatives/ net|
|capital (%)|51.01|51.26|
|Proprietary fixed income securities/net capital (%)|221.34|204.45|

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Notes: All data above have been calculated based on the financial information prepared in accordance with the China Accounting Standards for Business Enterprises

VIII. DIFFERENCES BETWEEN IFRS AND PRC GAAP

Net profits for January to June 2017 and January to June 2016, and net assets as at June 30, 2017 and December 31, 2016 as stated in the consolidated financial statements of the Group prepared in accordance with PRC GAAP are consistent with those prepared in accordance with IFRS.

DFZQ Interim Report 2017

Section III Summary of the Company’s Business

I. EXPLANATIONS ON THE PRINCIPLE BUSINESSES ENGAGED BY THE COMPANY, OPERATIONAL MODELS AND INDUSTRIAL CONDITIONS DURING THE REPORTING PERIOD

The Company holds full licenses of the businesses that securities firms in the PRC are permitted to conduct, and it primarily engages in the following five businesses during the Reporting Period:

• Securities Sales and Trading

The Company conducts securities sales and trading business with its own capital, including equity investment and trading, fixed income investment and trading, financial derivatives trading business, NEEQ market-making business, alternative investment and securities research services.

The Company engages in professional equity investment and trading business and fixed income investment and trading business, which includes various stocks, funds, bonds, derivatives and others. In the meantime, it actively expands FICC business.
The Company conducts financial derivatives trading business by means of arbitrage trading to obtain absolute income with low risk exposure.
The Company actively conducts NEEQ market-making business through the difference between the purchase price and the selling price of the Company’s inventory stocks as well as the bid-ask spread the Company collects when facilitating trading in shares to obtain income.
The Company engages in alternative investment business through Orient Securities Innovation Investment, a wholly-owned subsidiary of the Company, and its investment products include structured products in secondary market, banks’ non-performing assets backed securitization products and others.
The Company provides its institutional clients with research services. The clients allocate funds to the seats through the Company, and determine to lease special unit trading seats from the Company, and determine the trading volume allocated based on the quality of the research services provided by the Company.

• Investment Management

The Company provides its clients with asset management scheme, fund management products and direct investment funds.

The Company conducts asset management business through Orient Securities Asset Management, a wholly-owned subsidiary of the Company, providing a complete product line of asset management business including collective asset management, targeted asset management, specialized asset management and mutual funds raised by securities firms.

Interim Report 2017 DFZQ

Section III Summary of the Company’s Business

The Company conducts fund management business for its clients through China Universal, an associate in which the Company is the largest shareholder with a shareholding of 35.412%.
The Company engages in private equity investment fund management business through Orient Securities Capital Investment.
Brokerage and Securities Financing

The Company conducts securities brokerage business and futures brokerage business, and provides its clients with securities financing services including margin financing and securities lending, collateralized stock repurchase and repurchase agreement transactions.

The Company’s securities brokerage business primarily focuses on trading stocks, funds and bonds on behalf of its clients according to the instructions given to the authorized branches.
The Company conducts futures brokerage business through Orient Securities Futures, a wholly-owned subsidiary of the Company as well as a member of Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange and China Financial Futures Exchange, who provides the clients with commodity futures brokerage, financial futures brokerage, futures investment consultancy and other services.
The Company’s margin financing and securities lending business mainly refers to a transaction in which an investor provides the Company with collateral to borrow funds and purchase securities (margin financing transaction) or borrow and sell securities (securities lending transaction). The Company helps its clients to utilize financial leverage and capture potential opportunities in the market with a view to enhancing investment returns for clients.
The Company’s collateralized stock repurchase transaction business refers to a transaction in which qualified borrowers pledge their stocks or other securities as collateral to obtain financing from the Company and agree to repay the funds on a future date to release such pledge.
The Company’s repurchase agreement transaction refer to a transaction in which qualified clients sell subject securities to the Company at an agreed-upon price, and agree to repurchase the subject securities from the Company at another agreed-upon-price on a specific date in the future.

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DFZQ Interim Report 2017

Section III Summary of the Company’s Business

• Investment Banking

The Company carries out investment banking business mainly through its relevant business departments and Citi Orient, a subsidiary in which the Company holds 66.67% equity interests.

The Company provides equity underwriting and sponsorship services, including initial public offerings, and refinancing projects including non-public offerings and rights issue.
The Company provides debt underwriting business, including underwriting services for corporate bonds, enterprise bonds, treasury bonds, financial bonds and others.
The Company provides corporate clients in the PRC with financial advisory services in areas such as mergers & acquisitions and restructuring, NEEQ securities recommendation and listing as well as enterprise reform.

• Headquarters and Others

The Company’s headquarters and others businesses mainly include headquarters’ treasury business and overseas business.

Headquarters’ treasury business mainly includes headquarters financing business and liquidity reserves investment.
The Company conducts internationalization business through Orient Hong Kong, a wholly-owned subsidiary of the Company with its business place in Hong Kong. Orient Hong Kong conducts securities trading, financing business, securities underwriting, asset management and other business through its wholly-owned subsidiaries.

II. EXPLANATIONS ON MATERIAL CHANGE IN MAJOR ASSETS OF THE COMPANY DURING THE REPORTING PERIOD

Please refer to “Section IV. I. (I) Overview of Operations”, “Section IV. I. (II) Analysis of Principal Businesses” and “Section IV. I. (II) Analysis on Principal Components of Consolidated Statement of Financial Position” for details.

In particular: offshore assets amounted to RMB11.671 billion, accounting for 5.49% of the total assets.

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Interim Report 2017 DFZQ

Section III Summary of the Company’s Business

III. ANALYSIS ON CORE COMPETITIVENESS DURING THE REPORTING PERIOD

During the Reporting Period, the Company constantly deepened its strategic transformations by actively promoting the transformation from traditional brokerage business to wealth management business, from business through traditional channels to comprehensive financial services, from traditional trading business to capital intermediary business, and from traditional investment business to sales trading business, with a view to making the Company a modern investment bank which has the domestic first-class core competitiveness and provides comprehensive financial services for clients. Through strategic transformations, the Company witnessed an overall improvement in its capital strength, client management, products pricing and sales, investment and trading, liquidity management and other capabilities, as well as a continuous enhancement in its strength in areas such as serving real economy and social wealth management, and it also formed the core competitiveness in the following five aspects:

1. Significant Improvement in Capital Strength

Over the past three years, the Company seized the market opportunities and strengthened its capital strength rapidly and improved its market competitiveness, profitability, anti-risk capability through the issue and listing of A+H Shares, multi-species and multi-type bonds financing and its own growth in profits, which provided a solid capital protection for its business transformation, innovation and development. During the Reporting Period, the Company completed the issuance of corporate bonds and subordinated bonds with a total amount of RMB11.0 billion.

2. Distinguished Investment Management Capability

Leveraging on its distinguished investment management capability, the Company is situated at the leading position in the industry in securities investment, asset management and fund management fields.

For securities investment, the Company always sticks to an investment ideal of “value investment and active risk management”, and has developed an investment and research capacity which is well recognized in the industry. The securities investment business has kept its leading position in the industry in terms of scale and performance.

During the Reporting Period, the asset under management (“AUM”) of the entrusted assets of Orient Securities Asset Management, a wholly-owned subsidiary of the Company, saw a steady growth, with a further enhancement in discretionary management advantage. As at the end of the Reporting Period, the AUM of the entrusted assets of Orient Securities Asset Management has exceeded RMB170.0 billion, recording excellent medium- and long-term results, and the proportion of the AUM of discretionary management in the AUM of entrusted assets amounted up to 96%.

China Universal, of which the Company is the largest shareholder, conducts fund management business. During the Reporting Period, the AUM and ranking of China Universal maintained stable, with continuous excellent medium- and long-term results. As at the end of the Reporting Period, the AUM of China Universal has exceeded RMB500.0 billion, ranking top 10 in terms of AUM in the mutual funds industry. The discretionary management equity mutual funds of China Universal recorded the best five-year performance among top ten fund companies and have been awarded as “Star Fund Company for Three-Year Continuous Return (三年持續回報明星基金公司)” by the 12th China Fund Industry Star Fund Award.

DFZQ Interim Report 2017

Section III Summary of the Company’s Business

3. Sound and Effective Compliance and Risk Management System

“Compliance creates value” and “Risk management is the responsibility of every employee” are the core concepts of the risk management of the Company. The Company is leading in the industry in terms of risk management. The Company has received AA or A rating for nine consecutive years (AA rating being the highest rating ever received by the PRC securities companies).

During the Reporting Period, the Company has practically and effectively implemented the newly revised Norm for the Comprehensive Risk Management of Securities Firms (《證券公司全面風險管理規範》) and other statutory documents, and amended, improved and implemented the basic risk management system of the Company, risk management measures for its subsidiaries, credit risk management measures, operational risk management measures and other rules and regulations. The Company has further established a sound and comprehensive risk management system and an effective internal control system, and achieved an organic integration among risk management, compliance management and internal control, which covered all subsidiaries, departments, branches and all staff, throughout all links of decision-making, implementation, monitoring and feedback.

4. Stable Management Team and Established Personnel System

Stable and experienced management team is the key to maintain continuous rapid development for the Company. The experienced senior management of the Company has a deep understanding of the development and characteristics of the securities and financial industries in China. The core management team has over ten years of management experience in the securities and financial industries on average, which ensures the consistent implementation of the strategies.

A professional, high caliber and stable talent team constitutes an integral part of the Company’s core competitiveness. The Company further promotes the lean management for talent, focusing on creating an all-staff learning organization, strengthening the construction of the incentive and restraint mechanism, constantly improving the performance-based payment management system, adhering to the combination of internal mining and external introduction, which cultivates a large number of professional key staff with relatively strong competitiveness.

5. Outstanding Corporate Party Building and Corporate Culture Construction

The Company places great emphasis on corporate party building and corporate culture construction, insists on combining the leadership of the party with financial services, promotes the construction of the party building organization, team and system at grassroots, continuously consolidates and deepens the advantages of corporate culture and mass organizations, so as to leverage on the core role of the leadership of the party committee, the political core role and the role of fighting fortress of party organizations at grassroots, with effective services to the implementation of strategies of the Company. Corporate culture is the soul for the development of the Company, and the Company relies on people-oriented cultural philosophy of “Home”, to agglomerate team, to constantly consolidate the core competing strengths of corporate culture, so as to become the spiritual power and solid support to promote the development of the Company.

Interim Report 2017 DFZQ

Section IV Directors’ Report

I. DISCUSSION AND ANALYSIS ON OPERATIONS

(I) Overview of Operations

In the first half of 2017, China’s GDP maintained steady growth while its foreign exchange reserves increased slightly. The securities industry has entered into a period of “deleveraging and risk prevention”. The A share market in China fluctuated with an upward trend. The SSE Composite Index and Shenzhen Composite Index closed at 3192.43 points and 10529.61 points, respectively, both representing an increase of approximately 3%, the CSI 300 Index rose by 10.78% on aggregate and the Growth Enterprise Index declined by 7.34%.

During the Reporting Period, despite the occurrence of unfavorable market factors, the Company achieved good overall performance with operating revenues and net profits which were significantly higher than industry average. The Company successfully got rated by Moody’s, which is conductive to boosting the development of its overseas business.

During the Reporting Period, the Company actively promoted the offering of A Shares to further improve its capital strength. Regulatory requirements were fully implemented and the bottom line for compliance and risk control was set, so as to comply with the new regulatory policies and requirements on compliance, risk control and customer appropriateness. The Company amended its rules and regulations in a timely manner and made sure that all measures taken were implemented. Focusing on key areas and supported by management and control measures, the Company monitored major aspects of its operation to ensure compliance. The Plan for the Overall Risk Management (《全面風險管理工作方案》) was formulated, organizational structure was optimized, the policy systems and the platform for the overall risk management were improved, and more efforts were put on the risk management of subsidiaries. All this have strengthened the Group’s risk management effectively.

During the Reporting Period, the Company continued to promote the innovation, transformation and development of various businesses based on the master plan of operation determined at the beginning of the year. The proprietary trading business achieved good results. The innovative business strove to rank top in the industry, the “Shanghai State-owned Enterprises ETF (上海國企ETF)” project of China Universal won the first place of the Shanghai Financial Innovation Award and the Company was among the first four quotation brokers which were selected for the “Bond Connect”. The wealth management business continued to speed up its pace of transformation and the comprehensive financial service capabilities were further improved. The subsidiaries of the Company actively carried out quality improvement and efficiency enhancement and continued to become stronger and more competitive with their revenues up by 24% year on year. The investment management business recorded outstanding performance. In particular, the performance of Orient Securities Asset Management and China Universal outperformed their industry peers, and the net value of the Dong Fang Hong series products hit a record high, which further improved its brand influence.

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DFZQ Interim Report 2017

Section IV Directors’ Report

As at the first half of 2017, the total assets of the Group amounted to RMB212.457 billion, representing an increase of 0.02% as compared with the beginning of the year; equity attributable to owners of the Company was RMB40.873 billion, representing an increase of 0.96% as compared with the beginning of the year; net capital of the Company was RMB35.251 billion, representing an increase of 4.01% as compared with the beginning of the year; net profit attributable to owners of the Company was RMB1.755 billion, representing an increase of 36.76% as compared with the corresponding period of last year. The Group realized revenue and other income of RMB7.702 billion, in which securities sales and trading business contributed RMB2.375 billion, accounting for 30.62%; investment management business contributed RMB891 million, accounting for 11.49%; brokerage and securities financing business contributed RMB2.613 billion, accounting for 33.69%; investment banking business contributed RMB791 million, accounting for 10.19%. (Consolidation and elimination were not considered when calculating segment revenue and other income and segment expense and their proportions. This applies to the below section)

Table of Principle Businesses of the Group

Unit: RMB’000

		Principal businesses by segments	Principal businesses by segments	Principal businesses by segments
				Change in
					segment	Change in
				revenue and		segment	Change in
				other income		expense	profit margin
	Segment				over the	over the	over the
	revenue and	Segment	Profit	same period		same period	same period
Business segment	other income	expense	margin(%)	lastyear(%)		lastyear(%)	lastyear
Securities sales and trading	2,375,468	879,791	62.96		391.06	35.47	Up by 97.22
							percentage points
Investment management	891,395	540,853	55.98		31.73	133.18	Down by 29.36
							percentage points
Brokerage and securities	2,613,305	1,353,644	48.20		-8.72	-23.08	Up by 9.67
financing							percentage points
Investment banking	790,822	370,889	53.10		-1.24	17.45	Down by 7.46
							percentage points
Headquarters and others	1,087,186	2,581,470	-137.45		-0.31	80.95	Down by 106.63
							percentage points

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Interim Report 2017 DFZQ

Section IV Directors’ Report

(II) Analysis of Principal Businesses

1. Principal businesses of the Company

(1) Securities Sales and Trading

The Company conducts securities sales and trading business with its own capital, including proprietary trading (equity trading, fixed income proprietary trading, derivatives trading business), NEEQ market-making business, innovative investment and securities research services. During the Reporting Period, the securities sales and trading business realized segment revenue and other income of RMB2.375 billion, taking up 30.62% of the total. (Consolidation and elimination were not considered when calculating segment revenue and other income and segment expense and their proportions. This applies to the below section)

Proprietary trading

The Company has been focusing on the development of proprietary trading business since its establishment. During the past two decades, the Company continued to cultivate investment teams and accumulate market experience. Pursuing value investing and active risk management, the Company’s investment and research capabilities are now well recognized in the industry. The scale and performance of the proprietary trading business maintains a leading position in the industry.

The following table sets forth the balance by asset class of our proprietary trading business

(In RMB million)	As at December 31, 2016	As at June 30, 2017
Stocks Funds Bonds Others_(Note)_	7,914.2 2,743.5 40,529.5 4,294.7	11,945.5 3,003.1 52,809.2 2,574.9
Total	55,481.9	70,332.7

Note: Primarily include investment in asset management schemes and wealth management products using our own capital.

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DFZQ Interim Report 2017

Section IV Directors’ Report

During the Reporting Period, the Company followed the concept of value investment when conducting equity proprietary trading business and intensively penetrated into the A share market. The Company carefully selected individual shares with long-term investment value and made prudent investment decisions based on its judgments on macroeconomic conditions and regulatory environment, as well as detailed industrial analysis and market cycle analysis. Meanwhile, as the strategy of financial globalization was further promoted and policies such as the “Shanghai-Hong Kong Stock Connect” and “Shenzhen-Hong Kong Stock Connect” were implemented, the Company focused on strengthening its coverage and asset allocation in the global market to diversify investment risks and ward off the volatilities of investment portfolio caused by domestic systemic risks, thus accumulating returns from overseas investments. During the Reporting Period, in terms of net growth rate, the investment portfolios of the Company were among 10% of the common equity and equity-focused funds with AUM of more than RMB5.0 billion.

During the Reporting Period, the Company’s fixed income proprietary trading business kept sound development. The Company realized a total bond settlement of RMB2.43 trillion on interbank market, ranking the top among the securities firms. Bond transactions of RMB576.341 billion were conducted via stock exchanges. The Company was awarded Excellent Issuer, Excellent Dealer and Excellent Underwriter of the PRC Bond Market by China Central Depository & Clearing Co., Ltd. in 2014, 2015 and 2016.

The interbank bond market-making business once again delivered impressive results. In the first half of 2017, the interbank market-making business ranked the first in the interbank market. The Company was among the first four securities firms that obtained the qualifications to quote in the “Bond Connect”. The Company continued to promote the FICC business, forming three business segments, namely gold investment, interbank lending and gold-linked investment products. The Company actively prepared for the foreign currency business.

During the Reporting Period, the derivatives trading business proactively carried out transformation and diversified revenue sources. During the Reporting Period, the trading products of the derivatives trading business were gradually enriched. The Company, adhering to the strategic direction of transforming from traditional proprietary trading to sales trading and from traditional stock investment to FICC business, promoted the transformation of the derivatives trading business from traditional alpha strategic investments to options, treasury bonds futures, commodity futures and other on-exchange transactions and the sales and trading of OTC derivatives, and as a result, its revenue gradually increased with diversified revenue sources.

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Interim Report 2017 DFZQ

Section IV Directors’ Report

NEEQ market making

In the first half of 2017, NEEQ Market Making Component Index accumulated a decline of 4.24%. Facing a gloomy market, the Company continued to implement its refined market making strategy, enhanced post-investment management of existing shares under its scope, and further optimized share investment portfolio. When selecting new targets, the Company assessed potential, industry development, business scale and valuation safety margin more carefully. As a result, the NEEQ market making business remained at a leading position in the market.

In the first half of 2017, according to the “Monthly Quality Rating for Sponsors (主辦券商執業質量月度評價)” published by NEEQ listed companies, the Company came into the fourth place among 92 market makers in terms of transaction volume and timeliness. As at the end of the Reporting Period, the Company offered the NEEQ market making service for 114 enterprises, among which 5 enterprises have successfully applied for IPO. The balance of the Company’s market-making business amounted to RMB2.879 billion.

During the Reporting Period, the Company was recognized as one of the “2016 China’s Best Ten NEEQ Market Maker (2016中國新三板十大最佳做市商)” at the NEEQ Market Maker Conference of China, and was awarded the “2017 Junding Award for NEEQ Market Maker in China (2017 中國區新三板做市商君鼎獎)” by Securities Times.

Innovative investment

The Company engages in alternative investment business through its wholly-owned subsidiary Orient Securities Innovation Investment, which focuses on innovative businesses including acquisition and disposal of bank asset package and actively explores various structured financial business. As at the end of the Reporting Period, Orient Securities Innovation Investment has invested in 82 projects with an investment amount of RMB3.195 billion, up by 10% as compared with the beginning of the year.

Securities research

During the Reporting Period, the securities research business of the Company continued to intensively penetrate into the mutual fund market, achieving a commission income of RMB128 million in total, of which RMB119 million were the commission income from mutual fund research, representing a market share of 3.14%. The ranking of the Company’s mutual fund research continued to rise and the Company was a top ten among 15 mutual fund research institutions. The Company actively developed its non-mutual fund clients, carefully analyzed client demands and organized about 70 specific research sessions, winning support and recognition from clients, which in turn helped mould the Company’s brand image.

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DFZQ Interim Report 2017

Section IV Directors’ Report

(2) Investment Management

The Company provided clients with asset management schemes, mutual fund products and private equity investment business. During the Reporting Period, the investment management business realized segment revenue and other income of RMB891 million, accounting for 11.49% of the total segment revenue and other incomes.

Asset management

The Company mainly engages in asset management business through its wholly-owned subsidiary Orient Securities Asset Management. As at the end of the Reporting Period, 160 investment portfolios were under the management of the Company, and the AUM of entrusted assets reached RMB177.667 billion, up by 15.29% as compared with the beginning of the year. The AUM of discretionary management assets was RMB170.805 billion, accounting for 96.14% of the AUM of entrusted assets, which further highlighted the advantages of discretionary management. According to the Securities Association of China, Orient Securities Asset Management ranked 5th in the industry in terms of the net income from entrusted asset management business during the Reporting Period.

The following table sets forth the AUM of the Company by product type:

(In RMB million)	As at December 31, 2016	As at June 30, 2017
Collective asset management scheme Targeted asset management scheme Specialized asset management scheme Mutual funds	29,202.1 77,909.9 10,723.3 36,273.0	41,709.6 77,861.0 9,604.1 48,492.1
Total	154,108.3	177,666.8

The following table sets forth the AUM of discretionary management products and nondiscretionary management products:

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(In RMB million, except As at December 31, 2016 As at June 30, 2017
for percentage) AUM Percentage AUM Percentage
Discretionary management
products 142,798.8 92.66% 170,804.6 96.14%
Non-discretionary
management products 11,309.5 7.34% 6,862.2 3.86%
Total 154,108.3 100.00% 177,666.8 100.00%
Interim Report 2017 DFZQ
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Section IV Directors’ Report

As the first asset management company established by a securities firm in China, Orient Securities Asset Management always sticks to professional and diversified development and discretionary management mode, and together with the advantages of the asset management of securities firm and mutual fund business, has formed its unique core competitiveness. Currently, the asset management business has established a diversified investment and financing business layout covering equity investment, fixed income investment, quantitative investment and alternative financing areas. During the Reporting Period, the asset management business maintained good development momentum, with the total AUM and the AUM of discretionary management continuing their growth. The numbers and types of the products managed gradually enriched, which was conducive to the high relevant business incomes.

The outstanding middle and long-term results of Orient Securities Asset Management have attracted wide attention from the market. From 2005 to the end of the Reporting Period, the average annualized return of the discretionary management equity products of Orient Securities Asset Management was 24.20%. During the same period, the average annualized return of CSI 300 Index was 12.47%. In the first half of 2017, the average annualized return of the discretionary management equity products of Orient Securities Asset Management was 27.18%. During the same period, the average annualized return of CSI 300 Index was 10.78%.

The brand influence of Orient Securities Asset Management continued to grow, and has been widely recognized by the market. During the Reporting Period, DFH Asset Management (東方紅資產管理) won over 10 awards, including “Golden Bull-Collective Asset Management Securities Firm (for three-year period) (三年期金牛券商集合資產管理人)” by China Securities Journal, “2016 Golden Fund Growing Company Award (2016年度金基金 • 成長基金管理公司)” by Shanghai Securities News, and “2017 Jun Ding Award for Wealth Management Brand (2017中國財富管理品牌君鼎獎)” and “2016 Stock Investment Star Team (2016年度股票投資明星團隊)” by Securities Times.

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DFZQ Interim Report 2017

Section IV Directors’ Report

Fund management through China Universal

The Company mainly conducts fund management business through China Universal, an associate in which the Company is the largest shareholder with 35.412% equity interest.

During the Reporting Period, China Universal continued to keep excellent middle and long-term investment performance. According to the Fund Research Center of China Galaxy Securities, as at the end of the Reporting Period, the average return of China Universal’s discretionary management equity mutual funds in the last five years was 152.14%, ranking 1st among the top 10 fund companies. During the Reporting Period, the return of China Universal Consumption Industry (匯添富消費行業) and China Universal Blue Chip Steady (匯添富藍籌穩健) was 24.21% and 22.35%, ranking 1st and 2nd among similar funds, respectively. Fixed income funds also achieved excellent results. The results of Industrial Bond (實業債) and Convertible Bond (可轉債) both ranked top 10 among similar products. The results of guaranteed funds such as Yingxin (盈鑫) and Yingan (盈安) ranked top 5% among similar funds. During the Reporting Period, China Universal has won various awards, including “Star Fund Company for Three-Year Continuous Return (三年持續回報明星基金公司). “Best Bonds Investment Company (最佳債券投資公司)” and “Best Fund Company (最佳基金公司)”；China Universal Private Businesses Vitality (匯添富民營活力) and China Universal Value Selection (匯添富價值精選) have won “Golden Bull Fund” awards. For overseas investment, the Hong Kong subsidiaries of China Universal continued to achieve good investment performance. As at the end of the Reporting Period, the results of CUAM China-Hong Kong Strategy Fund in the past one and three years both ranked 1st among similar funds. The results of CUAM Hong Kong Dollar Bond Fund ranked 1st among 17 similar funds from the date of setting up to the end of the Reporting Period. Both of the funds have been rated as five-star funds (for three-year period) by Morningstar.

During the Reporting period, the AUM of China Universal remained stable. More efforts were put on the product distribution in relation to QDII, equity, bond and index funds. As at the end of the Reporting Period, the total AUM of China Universal was RMB501.1 billion. China Universal had 85 mutual fund products with AUM of RMB289.9 billion, ranking 10th in the industry. China Universal was the largest fund company in Shanghai area in terms of the AUM of its mutual funds.

During the Reporting Period, the project named “ETF for State-owned Enterprises in Shanghai – Financial Innovation Supporting the Reform of State-owned Assets and State-owned Enterprises”, which was jointly applied for by China Universal and Guosheng Group, was awarded the “Frist Prize for 2016 Shanghai Financial Innovation Achievements” by the Shanghai government.

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Interim Report 2017 DFZQ

Section IV Directors’ Report

Private equity investment

The Company mainly conducts private equity investment and management business through its wholly-owned subsidiary Orient Securities Capital Investment. Orient Securities Capital Investment carries out its business mainly through private equity fund management. Orient Securities Capital Investment and its fund management subsidiaries act as fund managers to receive management fees and/or bonuses for excess returns as agreed in the fund contracts and based on actual results. At the same time, Orient Securities Capital Investment also acted as one of the private equity fund investors to share investors’ profits. During the Reporting Period, Orient Securities Capital Investment launched and completed the fund raising of 6 new direct investment funds. Its AUM saw an increase of approximately RMB1.174 billion and 13 projects were newly invested. As at the end of the Reporting Period, the AUM of Orient Securities Capital Investment and the funds managed by it amounted to approximately RMB23,871 million, 79 projects have been invested accumulatively with an investment amount totaling RMB9,675.9622 million and USD1,077.55 million, a total of 71 investment projects continued and 14 projects were under preparation.

(3) Brokerage and securities financing

The Company’s brokerage and securities financing segment primarily comprises securities brokerage business, futures brokerage business and securities financing business including margin financing and securities lending and collateralized stock repurchase. Focusing on customer service is the core of the business. The Company seeks to build a full-pledged diversified financial platform by opening capital-light branches with low cost and high efficiency and expanding its online service platform and focusing on catering to the needs of its clients to provide them with customized value-added services, thus promoting the transformation from traditional brokerage business to wealth management business. During the Reporting Period, the brokerage and securities financing business achieved segment revenue and other income of RMB2.613 billion, accounting for 33.69% of the total segment revenue and other income.

The brokerage business is mainly conducted through the Company’s securities branches. During the Reporting period, taking advantage of market opportunities, the Company continued to expand its securities brokerage business network while the securities branches has covered all provinces in China, which laid a solid foundation for the sustainable development of securities brokerage business and relevant business linkage. As at the date of this report, the Company had 153 securities branches in total, covering 76 cities in 31 provinces, autonomous regions and municipalities directly under the central government, which makes it the fourth securities firm in the industry and the first securities firm in Shanghai that achieves full coverage of all provinces, autonomous regions and municipalities directly under the central government in China. A securities branches network across the country has been initially established. As at the date of this report, the Company had 24 futures branches in total.

DFZQ Interim Report 2017

Section IV Directors’ Report

During the Reporting Period, the Company continued to improve its online trading platform, and optimize the business functions and user experience of its mobile internet platform. The Company updated mobile APP, online sales shops and Wechat platform to create a 7X24 integrated financial service platform. Based on wealth account, the Company provided customers with one-stop investment services on the Internet using unified account systems. The Company enhanced marketing accuracy and provided personalized service using ways of the internet operation. Smart services such as smart customer service and smart investment consultant were developed to improve the coverage and effectiveness of investment service. During the Reporting Period, the trading volume of stocks and funds completed through the Internet and mobile devices accounted for 86% of the total trade volume of stocks and funds. As at the end of the Reporting Period, the number of clients who had carried out transactions through the Internet and mobile phones accounted for 94% of the total number of the stock and fund brokerage clients and the number of accounts opened online accounted for 89% of the total number of accounts opened during the corresponding period.

Securities brokerage

In the first half of 2017, the accumulated average daily trading volume was RMB476.08 billion, representing a year-on-year decline of 17.49%. During the Reporting Period, the Company’s trading volume of securities on behalf of its clients reached 7,685.4 billion, ranking 17th in the industry with a market share of 2.08%, in which the trading volume of stocks and funds amounted to RMB1,553.0 billion, ranking 20th in the industry with a market share of 1.38% (according to the statistics of WIND), the average stock and fund brokerage commission rate (including seats) was 0.38‰.

The following table sets forth the trading volume of our securities brokerage business by product type for the periods indicated (according to the statistics of WIND):

	For the six months ended June 30,	For the six months ended June 30,
(In RMB million)	2016	2017
Stocks and funds
Stocks	1,645,517.2	1,330,494.0
Funds	140,493.2	222,528.4
Sub-total	1,786,010.4	1,553,022.4
Bonds	4,559,754.7	6,132,395.1
Total	6,345,765.1	7,685,417.5

During the Reporting Period, the Company distributed wealth management products through its extensive securities branch network and the Internet platforms, which further improved its capabilities in distributing financial products.

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The following table sets forth the type and amount of all the financial products we distributed for the periods indicated, including OTC products:

	For the six months ended June 30,	For the six months ended June 30,
(In RMB million)	2016	2017
Mutual funds	60,857.6	53,804.5
Collective asset management products	714.2	705.5
Private equity fund products	224.2	487.3
Other financialproducts	3,889.5	16,794.4
Total	65,685.5	71,791.7

Futures brokerage

The Company conducts futures brokerage business through its wholly-owned subsidiary Orient Securities Futures. In the first half of 2017, China’s futures market saw a decline in trade volume as compared with the same period in the previous year. While engaging in traditional brokerage business, Orient Securities Futures proactively developed innovative business including fund sales, capital intermediary and equity pledge, and boosted the development of the brokerage business focusing on small and medium retail clients through developing mobile financial platforms. Orient Securities Futures continued to develop institution business, and maintained the largest market share in the field of mutual fund clients. More efforts were put on developing banking, insurance and private equity institutions. In addition, Orient Securities Futures diversified its operating income sources by cooperating with its parent company and external institutions to launch products. During the Reporting Period, the trading turnover on behalf of clients was 86.23 million lots with a trading volume of RMB5,373.730 billion, in which the trading volumes of commodity futures (including commodity options) and financial futures were RMB4,517.057 billion and RMB856.672 billion, respectively.

During the Reporting Period, Orient Securities Futures and Orient Securities Research Institute jointly established Orient Securities Derivative Research Institute (東證衍生品研究院). The institute aims to provide diversified and professional derivative services such as stock index, treasury bonds, foreign exchange, commodity, financial engineering and index for clients with demands for derivative research in different areas. The establishment of the institute has followed the development trend of securities and futures integration, which will not only promote the complementary and joint development of securities and futures research and constantly improve the derivative research level in the futures industry, but will also provide talents for Orient Securities Futures to maintain its leading position in the industry.

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During the Reporting Period, Orient Securities Futures received many awards, including “China’s Best Futures Company for the Year (年度中國最佳期貨公司獎)”, “China’s Gold Futures Research Institute for the Year – Orient Securities Futures Research Institute (年度中國金牌期貨研究所 – 東證期貨研究所)” and “Gold Management Team in China’s Futures Companies for the Year (年度中國期貨公司金牌管理團隊獎)” awarded by Futures Daily and Securities Times.

Securities financing

The Company was among the second batch of companies qualified to engage in margin financing and securities lending business in June 2010, and received the qualifications to conduct collateralized stock repurchase transaction business in July 2013. Meanwhile, the Company is one of the earliest players developing securities financing business in the industry. The Company also constantly made innovations and breakthroughs in resources obtaining business such as credit asset securitization, income right transfer, refinancing. Currently, a securities financing business system that can obtain and provide financing has been established. After the Company successfully completed its A share listing in 2015 and H share listing in 2016, the replenished net capital of the Company fuels the further development of its securities financing business, which has gradually become one of the important source of revenue and profit of the Company. The collateralized stock repurchase and other business always ranks top in the industry. With its knowledge of the stock market and its pricing ability, the Company has established its competitive advantages characterized with “high business efficiency, flexible financing plan and high quality customer service”, and gradually built its business brand of “Financing in Orient Securities (融在東方)”, which allows it to meet the funding requirements of different clients in a timely manner and won it a rate of return higher than the average level in the industry.

The total value of the securities financing business amounted to RMB46.177 billion as at the end of the Reporting Period, representing an increase of 2.14% as compared with the beginning of the year. The balance of margin financing and securities lending was 10.854 billion, representing an increase of 5.30% as compared with the beginning of the year, and ranking 21st in the industry with a market share of 1.23%, a rise of 0.13 percentage points as compared with the beginning of the year (according to the statistics of WIND). The number of margin financing and securities lending clients was 26,452, up by 2.57% as compared with the beginning of the year.

As at the end of the Reporting Period, the total value of the collateralized stock repurchase transaction business amounted to RMB35.282 billion, representing an increase of 1.22% as compared with the beginning of the year, and ranking 13th in the industry with a market share of 2.41%. The total value of the repurchase agreement transaction business amounted to RMB41 million.

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Others

The Company’s OTC business develops rapidly with its innovative ability leading the industry. The Company is one of the earliest securities firms implementing interaction and intercommunication with inter institutional market. In August 2014, the Company obtained qualifications for conducting five types of interinstitutional business for price quotation for private equity products and services system. The Company obtained the qualification for pilot OTC market business in October 2014. The Company was also the first market maker owning a quotation system, the first market-maker whose quotation system making market for external products and the first securities firm that issued the income certificates of its subsidiaries. Currently, the Company’s OTC business has established a relatively complete business chain, and completed the connection of products with market, trading system, registration and clearing and the daily management of matching system and the management of product settlement, covering the front, middle and back office, which can flexibly meet its demand and provide high efficient services for clients. The Company has comprehensive OTC functions, including launching new product, listing and transfer, market-making service, connectivity, investment function, financing function and collateralized repo function and its OTC products cover income certificate, private fund, asset management scheme, private equity financing and trust schemes. Meanwhile, the Company has actively explored its business to OTC derivatives, private bonds, asset securitization, collateralized repurchase and etc., with all operation indicators and innovation capabilities heading the list among the peers. During the Reporting Period, the total value of the Company’s OTC business amounted to RMB18.977 billion, representing an increase of 180.56% as compared with the same period last year. In particular, the total value of product issuance (sales) and subscription (sales) increased significantly from RMB4.849 billion last year to RMB17.181 billion, representing a year-on-year increase of 254.32%; the total value of the transfer of product agreement and market-making transactions increased greatly from RMB54 million in the corresponding period last year to RMB535 million in line with a much more active market. As at the end of the Reporting Period, the total value of the Company’s OTC business was approximately RMB21.627 billion.

During the Reporting Period, the Company strove to develop prime brokerage business, promoted private equity fund custody and comprehensive operation outsourcing service in an all-round manner and proactively prepared for mutual fund custody business, which all contributed to the strong growth momentum of its business. As at the end of the Reporting Period, there were 683 product portfolios whose operations were trusted online or outsourced, representing an increase of 64.18% and 324.2% as compared with the beginning of the year and the same period last year, respectively; the total value amounted to RMB44.942 billion, representing an increase of 88.3% and 508.6% as compared with the beginning of the year and the same period last year, respectively.

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(4) Investment banking

The Company mainly conducts investment banking business through Citi Orient (a subsidiary in which the Company holds 66.67% equity interest) and the Fixed Income Department. Citi Orient is engaged in underwriting and acting as sponsor of corporate stocks and debentures, underwriting of corporate bonds and asset backed securities, merger and restructuring, and financial advisory services relating to NEEQ listing and corporate restructuring. The Fixed Income Department is engaged in underwriting services for government bonds and financial bonds. During the Reporting Period, investment banking business realized RMB791 million of segment revenue and other income, accounting for 10.19% of the total.

Stock underwriting

In the first half of 2017, 247 IPO projects were issued in the whole market, with proceeds of RMB125.4 billion raised, and the scale of issue has accounted for 84% of last full year. The progress of secondary offering has been significantly slowed down. 259 secondary public offering transactions have been completed in the whole market, with proceeds of RMB673.7 billion raised, and the number and scale have significantly decreased as compared with last year.

During the Reporting Period, Citi Orient completed 9 equity financing projects with a total lead underwriting amount of RMB6.411 billion. The Company ranked 13th in the industry and 1st among joint venture securities companies in terms of number of lead underwriting transactions (according to the statistics of WIND), with a successful ratio for projects of 100%. As at the end of the Reporting Period, ten equity financing projects of Citi Orient has been approved, and 18 projects were under review.

The table below sets forth the breakdown of equity financing transactions with the Company acting as a lead underwriter:

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----- Start of picture text -----

For the six months ended June 30,
(In RMB million) 2016 2017
IPO:
Number of issuance 1 7
Lead underwriting amount 364.5 3,281.3
Secondary offering:
Number of issuance 9 2
Lead underwriting amount 9,135.1 3,130.0
Total:
Number of issuance 10 9
Lead underwriting amount 9,499.6 6,411.3
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Debt underwriting

In the first half of 2017, the debt market continued its weakness in the fourth quarter of last year, the market funds were relatively tight, corporate bonds of RMB410.7 billion and enterprise bonds of RMB325.7 billion were issued, both down by over 70% over the same period of last year. However, due to significant growth in scales of underwriting for financial bonds, ABS and convertible bonds, the total amount of bond underwriting remained generally stable, only down slightly over the same period of last year.

During the Reporting Period, the debt underwriting business of the Company has completed a lead underwriting amount of RMB27.38 billion. In particular, Citi Orient ranked 18th in the industry and 1st among joint venture securities companies in terms of times of bond lead underwriting; and ranked 18th in the industry and 1st among joint venture securities companies in terms of lead underwriting amount (according to the statistics of WIND). As at the end of the Reporting Period, 32 bond underwriting projects of Citi Orient has been approved, and 17 projects were under review.

The Fixed Income Department is responsible for such underwriting businesses as corporate bonds, financial bonds and debt financing instruments for non-financial enterprises in interbank market. On underwriting of treasury bonds, the Company became a member of bookentry treasury bonds underwriting syndicates in 2003. On underwriting of financial bonds, the Company joined in the financial bonds underwriting syndicates of China Development Bank in 2005, and became a Class A syndicate member in the next year; the Company joined in financial bonds underwriting syndicates of Agricultural Development Bank of China in 2010. Currently, the Company’s underwriting scale for CDB bonds and ADBC bonds both ranked top 3 among peers, and the scale of lead underwriting and distribution of debt financing instruments issued by non-financial enterprises in inter-bank market also recorded rapid growth. During the Reporting Period, the Company ranked 9th among securities companies acting as lead underwriters of debt financing instruments issued by non-financial enterprises, and the 17 BEW ABN001 underwritten by the Company was the first green ABN project in the whole city, and received repeated promotions by the National Association of Financial Market Institutional Investors.

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The table below sets forth the breakdown of debt underwriting with the Company acting as a lead underwriter:

	For the six months ended June 30,	For the six months ended June 30,
(In RMB million)	2016	2017
Corporate bonds:
Times of lead underwriting	14	17
Lead underwriting amount	19,040.0	16,540.0
Enterprise bonds:
Times of lead underwriting	8	2
Lead underwriting amount	9,646.0	1,200.0
Financial bonds:
Times of lead underwriting	0	4
Lead underwriting amount	0.0	3,320.0
Asset backed securities:
Times of lead underwriting	5	4
Lead underwriting amount	8,242.0	4,889.0
Debt financing instruments issued by
non-financial enterprises:
Times of lead underwriting	4	4
Lead underwritingamount	2,057.0	1,433.3
Total:
Times of lead underwriting	31	31
Lead underwritingamount	38,985.0	27,382.3

Financial advisory services

During the Reporting Period, Citi Orient's financial advisory services achieved steady progress and Citi Orient completed 3 merger and restructuring projects, with a total transaction amount of RMB9.058 billion. Citi Orient acted as an independent financial advisor for 2 major assets restructuring projects. Citi Orient was listed among the 11 securities companies which were rated by the Securities Association of China for three consecutive year as Class A financial advisory services for merger and restructuring of listed companies. As at the end of Reporting Period, one project was under review for financial advisory services, and two projects were approved.

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During the Reporting Period, Citi Orient completed 8 listing recommendation projects, which involved 886 million shares. It accomplished private placement of shares for 11 listed companies with an accumulated amount of RMB1.06 billion. As at the end of the Reporting Period, Citi Orient supervised 68 listing companies accumulatively. During the Reporting Period, Citi Orient was honored four awards including “Jun Ding Award for Equity Refinancing in Investment Banking in China Region (中國區股權再融資投行君鼎獎)” by Securities Times, four awards including “Vanguard Investment Banks for Mergers and Acquisition (併購重組先鋒投行)” by International Finance News and three honors including “Best Overseas Project (最佳海外項目)” by the 10th New Fortune Best Investment Bank.

(5) Headquarters and others

Headquarters and others business of the Company mainly include the headquarters’ treasury business and overseas business. During the Reporting Period, the headquarters and others business realize RMB1.087 billion of revenue and other income, accounting for 14.01% of the total.

Treasury business and others

Treasury business is aimed to enhance the comprehensive capital management of the Company, mainly including liquidity risk management, liabilities management and liquidity reserve investment business. During the Reporting Period, the Company kept improving liquidity management system to improve comprehensive liquidity management capability, to enrich margin of safety, continuously expand channel of financing, optimize liability structure, and actively carry out capital operation, thus its capital efficiency was further improved. During the Reporting Period, the Company received the Long-term Issuer Rating of Baa3 and Short-term Issuer Rating of P-3 from Moody’s Investor Service, Inc., with a stable outlook. The Company’s overseas credit rating and successful bond issuance record is a reflection of the Company’s good reputation, which will greatly enhance the Company’s international image, international influence and popularity, bringing a positive impact to the Company’s overseas business.

As at the end of the Reporting Period, the Company had sufficient liquidity, and liquidity coverage ratio and net stable funding ratio of the Parent Company stood at 233.43% and 123.73%, respectively, in line with regulatory requirements.

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Overseas business

The Company conducts overseas business through Orient Hong Kong, a wholly-owned subsidiary of the Company and its subsidiaries, with their place of business located in Hong Kong. Upon listing of H Shares, the Company further pushed forward its global strategy relying on Orient Hong Kong. Orient Hong Kong, through its wholly-owned subsidiaries, holds business licenses for dealing in securities, advising on securities, dealing in futures contracts, asset management, advising on corporate finance and lending. It has set up a comprehensive overseas business platform. During the Reporting Period, Orient Hong Kong took advantage of resources and strengths of the Parent Company, seized the opportunities of cross-border business including “Shanghai-Hong Kong Stock Connect”, “Shenzhen-Hong Kong Stock Connect”, “Bond Connect” and the policy dividend from Greater Bay Area, reinforced its business operation capabilities, expanded customer base and business scope, and improved business platform, so as to enhance its comprehensive financial service capabilities.

2. Major items in consolidated statement of profit or loss

(1) Revenue and other income

During the Reporting Period, the Company was determined to maintain stable operation and ensure compliance operation. By grasping market opportunities and enhancing its profitability, the Company made significant breakthroughs in its competitive business such as securities investment and asset management and realized RMB7.702 billion of revenue and other income during the Reporting Period, up by RMB1.952 billion or 33.95% over the same period of last year. Details were as follows:

Commission and fee income amounted to RMB2.304 billion, accounting for 29.92% of the total and representing an increase of 1.50% over the same period of last year. The main reason was that asset management fee income and fund management fee income recorded an increase over the same period of last year as a result of the increase in performance-based rewards provided for collective asset management products by Orient Securities Asset Management and the increase in the total value of mutual fund products. Meanwhile, due to the downturn of domestic securities market, with reducing transaction volume of stocks and funds and declining commission rate, its securities transaction, brokerage commission and fee income decreased as compared with the same period of last year.

Interest income declined by 11.33% over the same period of last year to RMB1.953 billion, accounting for 25.36% of the total. It was mainly due to a decrease in interest generated from self-owned capital of the Company and interbank deposit of settlement balance of client transaction which were reduced in size during the Reporting Period, a decrease in interest income from margin financing and securities lending business as a result of a decrease in the average balance of capital lent and a decrease in interest income from entrusted loans to subsidiaries.

Net investment gains increased by 210.26% over the same period of last year to RMB3.110 billion, accounting for 40.37% of the total, which was mainly attributable to a significant growth in securities investment business initiated with self-owned capital of the Company during the Reporting Period.

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Other income and gains grew 21.91% over the same period of last year to RMB335 million, accounting for 4.35% of the total, which was mainly attributable to increased government grant received during the Reporting Period.

Components of the Group’s revenue and other income for the Reporting Period are set out below:

From January to June 2017	From January	to June 2016	Changes	Changes
Amount	Amount		Amount
Item (RMB’000) Percentage	(RMB’000)	Percentage	(RMB’000)	Percentage
Commission and fee income 2,304,131 29.92%	2,269,990	39.48%	34,141	1.50%
Interest income 1,953,134 25.36%	2,202,655	38.31%	(249,521)	-11.33%
Net investment gains 3,109,642 40.37%	1,002,260	17.43%	2,107,382	210.26%
Other income and gains 334,690 4.35%	274,543	4.78%	60,147	21.91%
Total revenue and other income 7,701,597 100.00%	5,749,448	100.00%	1,952,149	33.95%

(2) Total expenditure

During the Reporting Period, total expenditure of the Company reached RMB5.668 billion, up by RMB1.346 billion or 31.15% over the same period of last year, which was mainly attributable to increase in employee cost, interest expenditure, depreciation and amortization, and other expenses. Details were as follows:

Staff costs were RMB1.821 billion, up by 120.55% over the same period of last year, mainly attributable to the corresponding increase of salary expenditure due to outstanding operating performances of certain business segments of the Company during the Reporting Period.

Interest expenses grew 6.87% over the same period of last year to RMB2.740 billion. Increase of interest expenses was caused by the increase in size of long-term subordinated bonds to enhance the level of net capital and liquidity and to improve the liability structure of the Company. Interest expenses of borrowings of subsidiaries increased as compared with the same period of last year.

Commission and fee expenses dropped 16.67% over the same period of last year to RMB174 million, which was mainly attributable to decreased securities brokerage service charge expenditure because of contraction in stock fund transaction volume.

Depreciation and amortization grew 7.18% over the same period of last year to RMB90 million, which was mainly attributable to increase in intangible assets which led to increase in amortization.

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Other expenses, including operation expense, tax and surcharges, and impairment loss of asset increased 31.79% over the same period of last year to RMB842 million. Reasons for such increase included increased relevant operation expenses because of expanded business volume.

Expenditure components of the Group in the first half of 2017 are set out as follows:

Unit: RMB’000

From January to June Item 2017	From January to June Changes 2016 Amount Percentage
Staff costs 1,821,365 Interest expenses 2,740,412 Commission and fee expenses 173,547 Depreciation and amortization 90,416 Other expenses 842,021	825,817 995,548 120.55% 2,564,280 176,132 6.87% 208,255 (34,708) -16.67% 84,362 6,054 7.18% 638,900 203,121 31.79%
Total 5,667,761	4,321,614 1,346,147 31.15%

3. Input in social welfare

In the first half of 2017, the Group input a total of RMB9,157 thousand in charitable donations and other public welfare events.

4. Cash flows

During the Reporting Period, the Company recorded RMB5.605 billion of net decrease in cash and cash equivalents, including:

(1) Net cash used in operating activities amounted to RMB14.113 billion, which includes:
i. RMB6.804 billion of net cash inflow was attributable to decrease in restricted cash or cash held on behalf of customers and clearing settlement funds;
ii. RMB18.383 billion of net cash outflow was attributable to increase in financial assets and derivatives at fair value through profit or loss;
iii. RMB6.248 billion of net cash outflow was attributable to decrease in amount of securities trading on behalf of clients;

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iv. RMB2.014 billion of net cash outflow was attributable to decrease in financial liabilities and derivatives at fair value through profit or loss;
v. RMB4.193 billion of cash inflow was attributable to increase in amount of financial assets sold under repurchase agreements.
(2) Net cash used in investment activities was RMB8.371 billion, which was primarily attributable to RMB6.781 billion of net increase caused by disposal of available-for-sale financial assets, held-to-maturity investments, loans advances to customers and other investments.
(3) Net cash from financing activities amounted to RMB138 million, which was mainly attributable to RMB1.339 billion of net cash inflow from issuance of debentures, short-term financing bonds and etc.

5. Others

(1) Details of material changes in the composition or sources of profit of the Company During the Reporting Period, the Company achieved a significant year-on-year increase in revenue and other income and net profit, primarily because the performance of the Company’s business such as securities investment achieved big breakthroughs during the Reporting Period, leading to the significant increase in relevant business segments’ percentage of the Company’s indicators such as revenue and other income and net profit.
(2) Analysis and description on progress of previous financing and major assets restructuring events of the Company
① On May 25, 2016, the Proposal on Issue of Subordinated Bonds (Including Perpetual Subordinated Bonds) by the Company was considered and approved at the 2015 annual general meeting of the Company. The Letter of No Objection on Listing and Transfer of 2016 Subordinated Bonds by 東方證券股份有限公司 (Shang Zheng Han [2016] No. 2057) issued by the SSE was received. The issue of the 2017 first tranche subordinated bonds was completed on April 26, 2017. Two types of bonds were available for the 2017 first tranche subordinated bonds. The issuing size of type one bonds was RMB1.5 billion, with a term of 3 years and final coupon rate of 4.90%, while the issuing size of type two bonds was RMB1.5 billion, with a term of 5 years and final coupon rate of 5.10%.
② On May 25, 2016, the Proposal on Issue of Subordinated Bonds (Including Perpetual Subordinated Bonds) by the Company was considered and approved at the 2015 annual general meeting of the Company. The Letter of No Objection on Listing and Transfer of 2016 Subordinated Bonds by 東方證券股份有限公司 (Shang Zheng Han [2016] No. 2057) issued by the SSE was received. The issue of the 2017 second tranche subordinated bonds was completed on May 15, 2017. Two types of bonds were available for the 2017 second tranche subordinated bonds. The issuing size of type one bonds was RMB1.5 billion, with a term of 3 years and final coupon rate of 5.15%, while the issuing size of type two bonds was RMB1.5 billion, with a term of 5 years and final coupon rate of 5.35%.

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③ On April 14, 2017, the Proposal on General Mandate to Issue Domestic Debt Financing Instruments by the Company was considered and approved at the 2017 first extraordinary general meeting of the Company. The Letter of No Objection on Listing and Transfer of Non-public Issued Bonds by 東方證券股份有限公司 (Shang Zheng Han [2017] No. 491) issued by the SSE was received. The non-public issue of first tranche 2017 bonds of the Company was completed on June 9, 2017. Two types of bonds were available for the non-public issue of first tranche 2017 bonds. The issuing size of type one bonds was RMB4.0 billion, with a term of 3 years and final coupon rate of 5.30%, while the issuing size of type two bonds was RMB1.0 billion, with a term of 5 years and final coupon rate of 5.50%.

④ Non-public issuance of A Shares of the Company in 2017

On April 14, 2017, the Company held the 2017 first extraordinary meeting, the 2017 first A Share class meeting and the 2017 first H Share class meeting and considered and approved the Proposal on Non-public Issue of A Shares of the Company.

On July 24, 2017, the First Feedback Notice of Examination on Administrative Projects from CSRC (No. 171003) issued by CSRC was received. CSRC has examined the application materials for administrative approval of Approval of Non-public Issue of New Shares of Listed Company 東方證券股份有限公司 submitted by the Company according to the law and now requests the Company to give written description and explanation regarding the related questions. The Company has disclosed related feedback opinions in the form of interim announcement published on SSE website and Hong Kong Stock Exchange website on August 7, 2017, and has submitted written response and opinion to department accepting administrative approval of CSRC on August 8, 2017.

On August 7, 2017, the Company held the 32th meeting of the third session of the Board and considered and approved Resolution of Adjusting the Proposal of Non-public Issue of A Shares of the Company. According to the mandates granted to the Board in the 2017 first extraordinary meeting, the 2017 first A Share class meeting and the 2017 first H Share class meeting, the Company adjusted the number of shares and amount of cash for subscription proposed by Shanghai Haiyan Investment under the non-public issue of shares according to the Proposal of Non-public Issue of A Shares of the Company, and further clarified the use of proceeds arising from non-public issue. For details, please refer to Proposal of 2017 Non-public Issue of A Shares of 東方證券股份有限公司 (3rd edition) disclosed on August 7, 2017 and related announcements.

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					Unit: RMB100 million	Unit: RMB100 million
					Number
					of shares
		Issuing price			permitted to	Date of
Type of shares and their		(or interest	Number of		be listed for	termination of
derivative securities	Issuing date	rate)	shares issued	Date of listing	trading	the trading
Ordinary shares
A Shares	March 11, 2015	RMB10.03	10	March 23, 2015	10	–
H Shares	June 22, 2016	HK$8.15	9.57	July 8, 2016	9.57	–
H Shares (over-allotted)	July 28, 2016	HK$8.15	0.7	August 3, 2016	0.7	–
Convertible corporate bonds, detachable convertible bonds, corporate bonds
Short-term commercial
papers	May 19, 2016	3.40%	90	June 7, 2016	90	May 19, 2017
Short-term commercial	December 16,			December 22,		December 16,
papers	2016	4.00%	40	2016	40	2017
Bonds of securities				September 23,
companies	August 26, 2014	6.00%	60	2014	60	August 26, 2019
	November 26,			December 18,		November 26,
Corporate bonds	2015	3.90%	120	2015	120	2020
	November 15,			November 29,		November 15,
Subordinated bonds	2013	6.70%	36	2013	36	2017
	November 17,			December 9,		November 17,
Subordinated bonds	2014	5.50%	14	2014	14	2018
Subordinated bonds	May 29, 2015	5.60%	60	July 2, 2015	60	May 29, 2020
Subordinated bonds	June 18, 2015	6.82%	6	August 27, 2015	6	June 17, 2018
	November 14,			November 25,		November 14,
Subordinated bonds	2016	3.45%	40	2016	40	2021
Subordinated bonds	April 26, 2017	4.90%	15	May 11, 2017	15	April 26, 2020
Subordinated bonds	April 26, 2017	5.10%	15	May 11, 2017	15	April 26, 2022
Subordinated bonds	May 15, 2017	5.15%	15	May 31, 2017	15	May 15, 2020
Subordinated bonds	May 15, 2017	5.35%	15	May 31, 2017	15	May 15, 2022
Corporate bonds	June 9, 2017	5.30%	40	July 19, 2017	40	June 9, 2020
Corporate bonds	June 9, 2017	5.50%	10	July 19, 2017	10	June 9, 2022
						November 26,
Offshore RMB bonds	November 26, 2014	6.50%	9	November 27, 2014	9	2017
Offshore RMB bonds	August 5, 2015	6.50%	6.2	August 6, 2015	6.2	November 26, 2017
Offshore RMB bonds	April 15, 2016	5.00%	5	unlisted	5	April 10, 2017
USD bonds	May 8, 2015	4.20%	USD200 million	unlisted	USD200 million	May 8, 2018
USD bonds	August 25, 2015	4.09%	USD150 million	unlisted	USD150 million	August 25, 2018

44 DFZQ Interim Report 2017

Section IV Directors’ Report

( III ) Analysis on Principal Components of Consolidated Statement of Financial Position

1 . Analysis on principal components of consolidated statement of financial position

During the Reporting Period, the total assets of the Company amounted to RMB212.457 billion, remaining stable as compared with the beginning of the year, while the total liabilities amounted to RMB171.089 billion, representing a decrease of RMB385 million, or 0.22%, as compared with the beginning of the year. Among the current assets of the Company, available-for-sale financial assets, held-to-maturity investments, financial assets at fair value through profit or loss, derivative financial assets and other financial assets represented 48.84% of its total assets; advances to customers and financial assets held under resale agreements represented 15.62% of its total assets; clearing settlement funds, cash and bank balances and restricted deposit represented 20.28% of its total assets. Among the non-current assets, property and equipment represented 0.87% of its total assets. The assets of the Company were under reasonable structure with strong liquidity.

Analysis on items of consolidated statement of financial position of the Company:

Unit: RMB’000

Item June 30,	December 31,		Changes	Changes
2017 Percentage	2016	Percentage	Amount	Percentage
Non-current assets 27,961,067	32,288,003		(4,326,936)	-13.40%
Property and equipment 1,841,270 0.87%	1,844,486	0.88%	(3,216)	-0.17%
Goodwill 32,135 0.02%	32,135	0.02%	–	0.00%
Other intangible assets 107,478 0.05%	114,884	0.05%	(7,406)	-6.45%
Investments in associates 3,423,317 1.61%	3,514,660	1.65%	(91,343)	-2.60%
Other receivables and prepayments – 0.00%	218,458	0.10%	(218,458)	-100.00%
Available-for-sale financial assets 9,293,191 4.37%	10,712,807	5.04%	(1,419,616)	-13.25%
Held-to-maturity investments 37,500 0.02%	140,500	0.07%	(103,000)	-73.31%
Financial assets held under resale agreements 13,081,440 6.16%	15,456,170	7.28%	(2,374,730)	-15.36%
Deferred tax assets 144,736 0.07%	253,903	0.12%	(109,167)	-43.00%

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Item June 30, 2017	Percentage	December 31, 2016 Percentage Changes Amount Percentage
Current assets 184,496,057 Advances to customers 11,145,018 Accounts receivable 572,555 Other receivables and prepayments 3,901,964 Available-for-sale financial assets 60,604,745 Held-to-maturity investments 85,609 Financial assets held under resale agreements 22,035,827 Financial assets at fair value through profit or loss 43,028,098 Derivative financial assets 39,006 Deposits with exchanges and financial institutions 920,583 Clearing settlement funds 10,053,496 Cash and bank balances 31,659,256 Restricted deposit 449,900		180,123,084 4,372,973 2.43% 10,651,586 5.01% 493,432 4.63% 737,500 0.35% (164,945) -22.37% 3,837,759 1.81% 64,205 1.67% 66,549,121 31.33% (5,944,376) -8.93% 71,560 0.03% 14,049 19.63% 19,102,771 8.99% 2,933,056 15.35% 23,329,193 10.98% 19,698,905 84.44% 70,509 0.03% (31,503) -44.68% 1,099,849 0.52% (179,266) -16.30% 10,504,501 4.95% (451,005) -4.29% 43,718,835 20.58% (12,059,579) -27.58% 449,900 0.21% – 0.00%

	5.25%
	0.27%
	1.83%
	28.53%
	0.04%
	10.37%
	20.25%
	0.02%
	0.43%
	4.73%
	14.90%
	0.21%
Total assets 212,457,124		212,411,087 46,037 0.02%

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Section IV Directors’ Report

Item June 30, 2017	Percentage	December 31, 2016 Percentage Changes Amount Percentage
Current liabilities 117,619,636 Borrowings 1,321,799 Amount due to banks and other financial institutions 6,985,000 Accounts payable to brokerage clients 29,403,782 Accrued staff costs 1,212,448 Other account payable, other payable and accruals 3,879,257 Current tax liabilities 185,693 Bond payables 14,768,482 Short-term financing bills payables 4,266,042 Financial liabilities at fair value through profit or loss 5,118,384 Derivative financial liabilities 856,417 Financial assets sold under repurchase agreements 49,622,332		123,973,035 (6,353,399) -5.12% 480,727 0.28% 841,072 174.96% 5,100,000 2.97% 1,885,000 36.96% 35,651,787 20.80% (6,248,005) -17.53% 1,377,921 0.80% (165,473) -12.01% 3,591,833 2.09% 287,424 8.00% 237,925 0.14% (52,232) -21.95% 24,020,769 14.01% (9,252,287) -38.52% 4,942,779 2.88% (676,737) -13.69% 7,471,177 4.36% (2,352,793) -31.49% 419,177 0.24% 437,240 104.31% 40,678,940 23.72% 8,943,392 21.99%

	0.77%
	4.08%
	17.19%
	0.71%
	2.27%
	0.11%
	8.63%
	2.49%
	2.99%
	0.50%
	29.00%
Net current assets 66,876,421		56,150,049 10,726,372 19.10%

Non-current liabilities 53,469,103 Borrowings 437,073 Financial assets sold under repurchase agreements 970,000 Derivative tax liabilities 230,333 Bondpayables 51,831,697		47,500,227 5,968,876 12.57% 859,034 0.50% (421,961) -49.12% 5,720,000 3.34% (4,750,000) -83.04% 357,851 0.21% (127,518) -35.63% 40,563,342 23.66% 11,268,355 27.78%

	0.26%
	0.57%
	0.13%
	30.30%

Total liabilities 171,088,739		171,473,262 (384,523) -0.22%

Total equity 41,368,385		40,937,825 430,560 1.05%

Note: Percentages for assets and liabilities refer to the share in total assets and the share in total liabilities respectively

Interim Report 2017 DFZQ

Section IV Directors’ Report

2. Non-current assets

As at the end of the Reporting Period, the Company’s non-current assets were RMB27.961 billion, representing a decrease of RMB4.327 billion, or 13.40%, as compared with the beginning of the year, mainly due to the decrease in funds from financial assets held under resale agreements and availablefor-sale financial assets.

3. Current assets and liabilities

As at the end of the Reporting Period, the Company’s net current assets were RMB66.876 billion, representing an increase of RMB10.726 billion, or 19.10%, as compared with the beginning of the year, mainly due to the increase in financial assets at fair value through profit or loss as compared with the beginning of the year.

4. Non-current liabilities

As at the end of the Reporting Period, the Company’s non-current liabilities were RMB53.469 billion, representing an increase of RMB5.969 billion, or 12.57%, as compared with the beginning of the year, mainly due to the increase in the size of bond payables.

5. Borrowings and bond financing

As at the end of the Reporting Period, the Company’s total borrowings and bond financing were RMB79.61 billion. Set out below is the breakdown of borrowings and bond financing of the Company at the end of the Reporting Period:

Unit: RMB’000

	Unit: RMB’000
Items June 30, 2017	December 31, 2016 64,584,111 1,339,761 4,942,779 5,100,000 75,966,651
Bond payables 66,600,179 Borrowings 1,758,872 Short-term financing bills payables 4,266,042 Amount due to banks and other financial institutions 6,985,000
Total 79,610,093

For details of interest rate and maturity profiles of borrowings and bonds financing, please refer to the notes to the appended interim financial report.

As at the end of the Reporting Period, the Company’s borrowings, amount due to banks and other financial institutions, short-term financing bills payables and bonds due within one year amounted to RMB27.341 billion, and the Company’s net current assets amounted to RMB66.876 billion. There is no liquidity risk in bond payables, borrowings, amount due to banks and other financial institutions and other interest-bearing liabilities due after one year.

Except for the liabilities disclosed in this report, as at the end of the Reporting Period, the Company had no outstanding mortgage, charges, bonds, other debt capital, liabilities under acceptance or other similar indebtedness, lease purchase and finance lease commitment, guarantee or other material contingent liabilities.

48 DFZQ Interim Report 2017

Section IV Directors’ Report

(IV) Analysis on Investments

1. Overall analysis on external equity investment

As at the end of the Reporting Period, the Group’s long-term equity investments amounted to RMB3.423 billion, representing a decrease of RMB91 million, or 2.60%, as compared with the beginning of the year. Main reason of the change was that the subsidiaries of Orient Securities Capital Investment and Orient Securities Innovation Investment withdrew from part of the investment projects, with a total of RMB100 million lesser in investment. Annual dividends receivable from China Universal amounted to RMB143 million and equity in China Universal recognized by equity method amounted to RMB151 million.

(1) Material equity investments

Unit: RMB

				Changes in
		Carrying value		owners’
	Percentage of	as at the end of	Profit or loss	equity interest,
	the equity of	the Reporting	during the	during the
Name of targets to be held	the company	Period	Reporting Period	Reporting Period
China Universal Asset
Management Company Limited	35.412%	1,556,468,558.57	145,048,525.56	6,274,943.59

(2) Material non-equity investments

During the Reporting Period, the Company had no material non-equity investments.

(3) Financial assets at fair value

Unit: RMB

		Investment cost	Book value as at	Net amount	Changes of
		as at the end of	the end of	purchased from	fair value	Investment income
		the Reporting	the Reporting	or sold during the	during the	during the
Items		Period	Period	Reporting Period	Reporting Period	Reporting Period
1.	Financial assets at fair
	value through profit or loss	41,599,830,520.59	43,028,098,415.44	18,669,315,154.43	1,051,124,868.11	345,823,582.81
2.	Available-for-sale financial
	assets	69,732,391,050.40	69,897,935,856.19	(6,966,018,969.04)	(397,973,009.58)	1,568,341,857.95
3.	Derivative financial
	instruments	(592,761,319.93)	(817,410,410.64)	(599,669,292.13)	232,881,546.30	(121,815,163.39)
					Interim Report 2017 DFZQ

Section IV Directors’ Report

2. Analysis on principal subsidiaries and investees

(1) The registered capital of Shanghai Orient Securities Futures Co., Ltd. was RMB1.0 billion and the Company held 100% of its equity. As at June 30, 2017, the total assets and net assets of Shanghai Orient Securities Futures Co., Ltd. amounted to RMB13,942,671.4 thousand and RMB1,530,609.0 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to RMB303,323.0 thousand and RMB51,690.2 thousand, respectively.

Principal business: commodities futures brokerage, financial futures brokerage, futures investment consultancy, assets management, funds sale.

(2) The registered capital of Shanghai Orient Securities Capital Investment Co., Ltd. was RMB4.0 billion and the Company held 100% of its equity. As at June 30, 2017, the total assets and net assets of Shanghai Orient Securities Capital Investment Co., Ltd. amounted to RMB4,702,395.7 thousand and RMB3,800,435.7 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to RMB160,925.0 thousand and RMB57,462.3 thousand, respectively.

Principal business: equity investments or bond investments with its own capital or through the establishment of direct investment funds, or investment in other investment funds in relation to equity investments and bond investments; provision of financial advisory services on equity investments and bond investments to clients; and other businesses permitted by CSRC.

(3) The registered capital of Shanghai Orient Securities Assets Management Co., Ltd. was RMB300 million and the Company held 100% of its equity. As at June 30, 2017, the total assets and net assets of Shanghai Orient Securities Assets Management Co., Ltd. amounted to RMB1,757,351.7 thousand and RMB1,211,437.5 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to RMB690,165.7 thousand and RMB173,929.9 thousand, respectively.

Principal business: securities assets management business, publicly raised securities investment funds management business.

(4) The registered capital of Citi Orient Securities Co., Ltd. was RMB800 million, and it is owned as to 66.67% by the Company. As at June 30, 2017, the total assets and net assets of Citi Orient Securities Co., Ltd. amounted to RMB1,613,665.9 thousand and RMB1,244,194.1 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to RMB492,368.5 thousand and RMB137,583.3 thousand, respectively.

Principal business: securities (excluding treasury bonds, financial bonds of policy banks, shortterm financing bills and medium-term notes) underwriting and sponsoring; other businesses permitted by CSRC.

DFZQ Interim Report 2017

Section IV Directors’ Report

(5) The registered capital of Shanghai Orient Securities Innovation Investment Co., Ltd. was RMB2.0 billion and the Company held 100% of its equity. As at June 30, 2017, the total assets and net assets of Shanghai Orient Securities Innovation Investment Co., Ltd. amounted to RMB3,527,828.5 thousand and RMB2,571,716.5 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to RMB138,102.9 thousand and RMB75,395.0 thousand, respectively.

Principal business: financial products investment, securities investment, investment management and investment consultancy.

(6) The registered capital of Orient Finance Holdings (Hong Kong) Limited was HK$2.1 billion and the Company held 100% of its equity. As at June 30, 2017, the total assets and net assets of Orient Finance Holdings (Hong Kong) Limited amounted to HK$13,447,786.0 thousand and HK$1,800,763.2 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to HK$125,082.1 thousand and HK$17,526.9 thousand, respectively.

Principal businesses: Investment holding, in particular, operation of brokerage business, corporate financing and asset management business as permitted by the relevant securities regulation rules in Hong Kong through establishment of various subsidiaries.

(7) The registered capital of China Universal Asset Management Company Limited was RMB132,724.224 thousand, and it is owned as to 35.412% by the Company. As at June 30, 2017, the total assets and net assets of China Universal Asset Management Company Limited amounted to RMB5,638,777.0 thousand and RMB4,395,562.2 thousand, respectively. In the first half of 2017, its operating income and net profit amounted to RMB1,310,840.6 thousand and RMB409,623.8 thousand, respectively.

Principal businesses: fund raising, fund sales, asset management and other businesses permitted by CSRC.

3. Structured Entities Controlled by the Company

For the structured entities with subsidiaries acting as managers, the Company has considered in overall that companies within the scope of our consolidated statements are entitled to realizable returns from those structured entities and are subject to the risks. Thus, the Company has included 23 structured entities into its consolidated statements. During the Reporting Period, the one newly-added structured entity was included in the consolidation scope. Four structured entities were excluded due to changes in shareholding or other reasons of loss of controlling right or liquidation.

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Section IV Directors’ Report

Interests in consolidated structured entities of the Reporting Period:

Unit: RMB’0000

Interests in consolidated structured entities	At the end of the Reporting Period or in the Reporting Period
Total assets Total liabilities Total net assets Operating income Net profit	516,823.00 26,477.77 490,345.23 5,775.07 3,632.09

4. Application of proceeds

(1) The general application of proceeds raised through A shares
As approved by CSRC through issuance of the Formal Reply Relating to Authorization of the Initial Public Offering of 東方證券股份有限公司 (Zheng Jian Xu Ke [2015] No.305), the Company made an initial public offering of 1,000,000,000 A Shares, which were RMB denominated ordinary shares, on March 23, 2015 with the issuance price of RMB10.03 per share. The total proceeds from the issuance of such A Shares was RMB10,030,000,000.00, and the net proceeds from the same was RMB9,799,724,000.00 after deducting the relevant underwriting expense of RMB230,276,000.00. The aforesaid proceeds from such issuance of A Shares were all deposited with the special proceeds account opened by the Company on March 16, 2015, for which, BDO has reviewed and verified with issuance of the capital verification report numbered as Xin Kuai Shi Bao Zi [2015] No. 111076. As at June 30, 2015, the proceeds from this offering of A Shares by the Company has been utilized in full, and the special proceeds account was also closed accordingly.
(2) The general application of proceeds raised through H shares As approved by the CSRC, the Company issued the overseas listed foreign shares (H Shares) in the Hong Kong Stock Exchange on July 8, 2016, and exercised the over-allotment option on August 3, 2016. Deloitte Touche Tohmatsu CPA LLP (Special General Partnership) has verified the proceeds from this offering of H shares by issuance of the capital verification report (De Shi Bao (Yan) Zi (16) No. 1082). Based on this capital verification report, it was noted that the Company made a public offering of 933,709,090 overseas listed foreign shares (H Shares) and the selling shareholders sold 93,370,910 H Shares, representing a total listing of 1,027,080,000 H Shares. Since the issue price of H Shares was HK$8.15 per share with nominal value of

DFZQ Interim Report 2017

Section IV Directors’ Report

RMB1.0 each, the total proceeds from this offering amounted to HK$8,370,702,000.00 which shall be paid in cash in Hong Kong dollars. After deduction of the transaction expense and other related expenses of HK$145,045,025.30 in aggregate, the remaining HK$8,225,656,974.70 has been deposited with the H share proceeds account and converted into RMB7,083,154,510.65 (including the interest income received) based on the median exchange rate for conversion from HK$ into RMB as published by the People’s Bank of China on the date when the proceeds were actually remitted into the aforesaid account. The net proceeds from this offering of H Shares by the Company was HK$7,417,133,357.56 after deduction of such proceeds as transferred to the National Council for Social Security Fund and other expenses totaling HK$808,523,617.14 related to the issuance.

As undertaken in the prospectus of the H Shares, approximately 35% of proceeds shall be used to further develop our brokerage and securities financing business, approximately 30% for developing our foreign operation, approximately 15% for expansion of our investment management business, approximately 10% for developing the securities sales and trading business, approximately 5% for capital expenditure to improve IT systems and expand our capital-light branches network, and approximately 5% for working capital and other general corporate purposes. Calculated by using the exchange rate for proceeds raised through H Shares in RMB based on actual exchange rate for settlement, calculated by using the exchange rate for proceeds raised through H Shares in HK dollars based on actual exchange rate at the end of month, calculated by not using the exchange rate for proceeds raised through H Shares based on the exchange rate as at December 30, 2016, the net amount of proceeds raised through H Shares through the above exchange rates shall be equivalent to RMB6,600,663,061.35. As at the end of the Reporting Period, the proceeds raised through H Shares used for the undertaken items in the prospectus shall be equivalent to RMB5,390,842,005.72, and the proceeds raised through H Shares undertaken but not yet used shall be equivalent to RMB1,209,821,055.63.

As at the end of the Reporting Period, there was no change in the planned use of the proceeds from the offering of H Shares as compared to that as disclosed in the Company’s prospectus. The Company will arrange utilization of such proceeds in due course based on its actual operation needs to maximize the shareholders’ interests.

5. Explanations on Change in the Scope of Consolidation of the Statements

(1) As compared to the beginning of this year, the Group added two entities into its scope of consolidation during the Reporting Period, which included one newly established subsidiary, and one structured entity newly consolidated.
(2) As compared to the beginning of this year, the Group excluded four entities from its scope of consolidation during the Reporting Period, which was four structured entities.

Interim Report 2017 DFZQ

Section IV Directors’ Report

II. OTHER DISCLOSURES

(I) Profit warning and explanation of expected accumulated net loss from the beginning of the year to the end of the next Reporting Period or significant changes over the same period of last year
Not Applicable

(II) Potential risks and risk prevention measures

The Company is exposed to risks in respect of its operations mainly associated to market risk, credit risk, liquidity risk, operational risk and technology risk. Specifically, such risks and respective countermeasures are represented in the following aspects:

(1) Market Risk

The Company has established a system covering the Group’s allocation of assets and liabilities and risk limits, reflecting the Company’s overall market risk appetite and risk tolerance. Under the Company’s overall business authority framework, each business segment operates within different levels of authorized risk limits to implement effective controls over various businesses and products so as to ensure the risk level to be within risk appetite set by the Company. The Company’s business departments, branches and subsidiaries are the first line of defense against market risk. Overall market risk management is part of the duties and functions of risk management function department of the Company.

The Company adopts daily mark-to-market, concentration analysis, impact cost analysis and quantitative risk model and optimization technology, to manage scale, leverage, risk exposure, duration and to establish dynamic-tracking stop-loss mechanisms, identifies the key factors affecting portfolio returns through sensitivity analysis, and evaluates the tolerance of investment portfolios to extreme market fluctuations by using scenario analysis and stress-testing.

The Company closely monitors the macroeconomic indicators and trends and major development in economic policies, evaluates the systematic risks on investment that may arise from changes in macro factors, regularly monitors the market risk control indicators, and adjusts investment strategy, while, setting up an organization for crisis decision-making, implementation and delegation of responsibility, developing contingency plans under various projected extreme circumstances, and grading and managing such crisis by their severity.

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Section IV Directors’ Report

(2) Credit Risk

The Company assesses the credit ratings of debtors or counterparties through its internal credit rating systems, grants reasonable credit by reference to the result thereof, and measures its credit risk by means of sensitivity analysis and stress test, so as to achieve quota management, tracking on the credit risk situation of debtors or counterparties, risk warnings and issuing reports through information management systems.

1) Direct credit risk: Credit risks from the credit products investment business and the securities financing business.

For credit products investment, in respect of publicly raised investment, the Company has set corresponding investment quota by reference to the internal and external credit rating of debtors; and in respect of private equity investment, the Company has established the entrance levels and investment caps for its products and controls the credit risks from these businesses through risk assessment, risk reminders and judicial recourse.

Credit risks from the securities financing business primarily include failure to make full repayment for liabilities on time, failure to make up the collateral according to the contract, failure to make full repayment for liabilities after forced closure of positions, etc. Credit risk arising from such kind of business is mainly controlled through risk education, credit reference checks, credit approval, daily mark-to-market, risk reminders, forced closure of positions, judicial recourse and other means.

2) Counterparty risk: The credit risks from OTC derivative transactions primarily include failure to make payment on time, failure to cover the security deposits in a timely manner when the losses are made on investments and discrepancy between amounts calculated by the parties, etc. The counterparties are primarily financial institutions or other professional institutions. The Company sets the deposit ratio for margin and restrictions on the transaction size, controls the credit risk exposure through daily mark-to-market, margin calls, forced closure of positions and judicial recourse and other means.
3) Settlement risk: Security brokerage business transactions in the mainland China are all required to be settled in full by security deposit, which has largely controlled risks relating to trading settlement.

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Section IV Directors’ Report

(3) Liquidity Risk

The Company has established an appropriate early warning indicator system, including benchmarks for liquidity coverage and net stable funding ratios, to monitor the particular circumstances or events that could possibly lead to a liquidity crisis on a daily basis. The Company has established a net capital supplementary mechanism to supplement the net capital or short-term working capital according to the demand for business development through issuing corporate bonds, subordinated bonds, income receipts, inter-banking lending and other forms. The Company also conducted regular or non-regular stress-testing to test the risk control indicators of the net capital and liquidity to predict and control liquidity risk in advance.

(4) Operational risk

In respect of compliance, legal and operational risk management and control, in combination with internal control and management this year, the Company set up the operational management system, selected the pilot department to gradually carry out operational risk analysis, to assess and monitor relevant work, and to establish the reporting system for the loss event in respect of operational risk; steadily proceeded to complete the establishment of internal control in phases this year, integrated the management and control of compliance risk and operational risk, comprehensively combed the working procedures and systems of each module; actively and steadily carried out the key works such as staff practice management, product management, client suitability management, information firewall management, anti-money laundering management, etc., to further enhance the efficiency of management and quality of work; actively promoted establishment of company rules, effectively implemented legal review, judicial assistance, legal support and other legal management responsibilities, made efforts to improve professional standards; implemented the functions of compliance assessment, promotion, inspection, and accountability etc., and strengthened the establishment of risk control team, and safeguard measures for compliance management. No material compliance, operational or legal risk events occurred during the Reporting Period.

(5) Technology Risk

The Company attaches high importance to technology risk management, and specifically sets up IT governance committee, which is responsible for information technology management. Under the guidance from the senior management of the Company, the Company carries out specific information technology risk management in a solid and orderly manner. However, with the rapid development in information technology today, due to such problems as equipment errors, deficiencies in software design, network line connection problems, the technical means may not be able to keep up with the changes, which practically cannot be entirely eliminated, so there still exist certain technology risks.

In addition, like other financial institutions, the Company may inevitably face a certain degree of compliance risk, legal risk, reputation risk and moral hazard in its operations and management. To cope with such types of risks, the Company has implemented a comprehensive risk management system which has fully covered the above risks, and designated the corresponding in-charge departments, established a corresponding management system and implemented appropriate technical measures.

DFZQ Interim Report 2017

Section IV Directors’ Report

With respect to the above risks, the Company has formulated corresponding risk management policies and measures to identify and assess these risks and has set up appropriate risk limits and internal control processes to monitor such risks through reliable management and information system, thereby striving to ensure the overall risk of the Company is measurable, controllable and tolerable.

(III) Other disclosures

Not Applicable

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Interim Report 2017 DFZQ

Section V Significant Events

I. GENERAL MEETINGS OVERVIEW

		Reference of the
		website specified for
	Date of	Information	Publication date
Session of the meeting	convening	disclosure	of resolutions
2017 first extraordinary general meeting, 2017	2017/04/14	http://www.sse.com.cn	2017/04/15
first A Share class meeting and 2017 first H		http://www.hkexnews.hk	2017/04/14
Share class meeting
2016 annual general meeting	2017/06/05	http://www.sse.com.cn	2017/06/06
		http://www.hkexnews.hk	2017/06/05

Explanation on general meetings:

During the Reporting Period, the Company convened the 2017 first extraordinary general meeting, 2017 first A Share class meeting and 2017 first H Share class meeting at Pine City Hotel, No. 777 Zhaojiabang Road, Xuhui District, Shanghai, the PRC on April 14, 2017. At the 2017 first extraordinary general meeting of the Company, 2 special resolutions the “Resolution in Relation to the Non-public Issuance of A Shares by the Company” and the “Resolution in Relation to the Proposal in Respect of the Non-public Issuance of A Shares (Revised)” and 9 ordinary resolutions the “Resolution in Relation to the Satisfaction of the Criteria for Non-public Issuance of A Shares by the Company”, the “Resolution in Relation to the Feasibility Report on the Use of Proceeds from the Non-public Issuance of A Shares”, the “Resolution in Relation to the Utilisation of Proceeds from Previous Fund Raising”, the “Resolution in Relation to the Related-party’s Transactions and Connected Transaction Involved in the Non-public Issuance of A shares”, the “Resolution in Relation to the Execution of the Subscription Agreements with Conditions Precedent with Specific Subscribers”, the “Resolution in Relation to the Authorization by the Extraordinary General Meeting, the A Share Class Meeting and H Shares Class Meeting to the Board of Directors to Deal With Relevant Matters of the Company Involved in the Non-public Issuance of A shares”, the “Resolution in Relation to the Dilution by the Non-public Issuance of A Shares on Current Returns and the Remedial Measures”, the “Resolution in Relation to the Shareholders’ Returns in the Next Three Years (2017-2019)” and the “Proposal Regarding the General Mandate to Issue Onshore Debt Financing Instruments of the Company” were considered and passed. At the 2017 first A Share class meeting of the Company, the “Resolution in Relation to the Non-public Issuance of A Shares by the Company”, the “Resolution in relation to the Proposal in respect of the Non-public Issuance of A Shares (Revised)”, the “Resolution in Relation to the Execution of the Subscription Agreements with Conditions Precedent with Specific Subscribers” and the “Resolution in Relation to the Authorization by the Extraordinary General Meeting, the A Share Class Meeting and H Shares Class Meeting to the Board of Directors to Deal With Relevant Matters of the Company Involved in the Non-public Issuance of A shares” were considered and passed. The relevant poll results were published on the website of the SSE (http://www.sse.com.cn), the website of the Hong Kong Stock Exchange (http://www.hkexnews.hk) and the Company’s website (http://www.dfzq.com.cn) at the date of the meetings and on China Securities Journal, Shanghai Securities News, Securities Times and Securities Daily on April 15, 2017.

DFZQ Interim Report 2017

Section V Significant Events

During the Reporting Period, the Company convened the 2016 annual general meeting at Pine City Hotel, No. 777 Zhaojiabang Road, Xuhui District, Shanghai, the PRC on June 5, 2017, at which 9 ordinary resolutions were considered and passed, including the “Report of the Board of Directors of the Company for the Year 2016”, the “Report of the Supervisory Committee of the Company for the Year 2016”, the “Final Accounts Report of the Company for the Year 2016”, the “Profit Distribution Proposal of the Company for the Year 2016”, the “Annual Report of the Company for the Year 2016”, the “Proposal Regarding the Proprietary Business Scale of the Company in 2017”, the “Proposal Regarding the Engagement of Auditing Firms for the year 2017”, the “Proposal Regarding the Projected Daily Related Party Transactions/Connected Transactions of the Company in 2017” and the “Proposal Regarding the Provision of Guarantees by the Company in 2017”. The relevant poll results were published on the website of the SSE (http://www.sse.com.cn), the website of the Hong Kong Stock Exchange (http://www.hkexnews.hk) and the Company’s website (http://www.dfzq.com.cn) at the date of the meeting and on China Securities Journal, Shanghai Securities News, Securities Times and Securities Daily on June 6, 2017.

II. PROFIT DISTRIBUTION PROPOSAL OR PROPOSAL ON TRANSFER OF CAPITAL RESERVE FUND INTO SHARE CAPITAL

The Company did not propose any profit distribution proposal or proposal on transfer of capital reserve into share capital during the first half of 2017.

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Interim Report 2017 DFZQ

Section V Significant Events

III. PERFORMANCE OF UNDERTAKINGS

Undertakings by the Company’s de facto controller, shareholders, related parties, acquirers, the Company and other parties during the Reporting Period or subsisting to the Reporting Period

							Reasons for
							failure to
				Time and		Timely and	perform if	Follow up plan
	Type of			validity period	Subject to	strictly	failed to	for failure to
Background of undertaking	undertaking	Covenantor	Content of undertaking	of undertaking	expiry	performed	perform timely	perform timely
Undertakings in relation to initial	To solve the	Shenergy Group	Shenergy Group has issued	After the public	Yes	Yes	–	–
public offering	problem		the Commitment Letter	offering and listing
	of business		of Avoiding Business	of shares of the
	competition		Competition to the	Company
			Company and undertook
			that it and the companies
			and enterprises under its
			direct or indirect control
			would not participate in
			any form of business or
			operation that compete
			or might compete with
			the Company and its
			subsidiaries.
	Shares	Shenergy Group	Shenergy Group undertook	Within 36 months	Yes	Yes	–	–
	subject to		that, during the 36 months	from the public
	lock-up		from the listing and trading	offering and listing
			of such shares on the	of shares of the
			stock exchange, it would	Company
			not transfer or entrust
			other parties to manage
			the shares of the Company
			held by it directly and
			indirectly.

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DFZQ Interim Report 2017

Section V Significant Events

	Background of undertaking Type of undertaking Covenantor Content of undertaking Time and validity period of undertaking Subject to expiry Timely and strictly performed Reasons for failure to perform if failed to perform timely Follow up plan for failure to perform timely

Section V Significant Events

IV. APPOINTMENT AND DISMISSAL OF ACCOUNTANT

During the Reporting Period, due to the term of the existing domestic and offshore auditors of the Company, BDO and Deloitte & Touche LLP (Deloitte Touche Tohmatsu (德勤• 關黃陳方會計師行) and Deloitte Touche Tohmatsu Certified Public Accountants LLP (德勤華永會計師事務所) (Special General Partnership)) (“Deloitte & Touche”) have been expired, the Company agreed to appoint Deloitte & Touche as the domestic and offshore auditor for 2017 for a term of one year at the 2016 annual general meeting of the Company through tender invitation according to the relevant requirements of the Administrative Measures for the Appointment of Accounting Firms by Financial Enterprises (《金融企業選聘會計師事務所管理辦法》), who was responsible for provision of relevant domestic audit service and internal control audit service in accordance with the PRC GAAP and provision of relevant audit services in accordance with the International Financial Reporting Standards.

V. MATTERS RELATED TO BANKRUPTCY AND RESTRUCTURING

There were no matters related to bankruptcy or restructuring of the Company during the Reporting Period.

VI. MATERIAL LITIGATION, ARBITRATION AND ISSUES COMMONLY QUESTIONED BY MASS MEDIA

During the Reporting Period, the Company had no material litigation, arbitration or issues commonly questioned by the mass media.

VII. PUNISHMENT ON AND RECTIFICATION OF THE LISTED COMPANY AND ITS DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT, CONTROLLING SHAREHOLDER, DE FACTO CONTROLLER AND ACQUIRER

On May 10, 2017, Orient Securities Asset Management, a wholly-owned subsidiary of the Company, received the Decision on Imposing the Order of Rectification on Shanghai Orient Securities Asset Management Co., Ltd. (Hu Zheng Jian Jue [2017] No. 44) from the Shanghai Bureau of the CSRC. As Orient Securities Asset Management faces weak internal control in investment research management, trading positions management control lax, poor personnel behavior management in operations and other issues, which was against the Management Rules for Securities Investment Fund Management Companies (《證券投資基金管理公司管理辦法》) and other laws and regulations. Orient Securities Asset Management was ordered by the Shanghai Bureau of the CSRC to rectify the above issues, further streamline relevant processes, strengthen the compliance consciousness of relevant personnel and submit a written report before May 22, 2017. The management of Orient Securities Asset Management paid close attention, requiring all departments to concentrate efforts on the implementation of rectification and sort out specific issues identified during inspection and implement rectification by item. Orient Securities Asset Management submitted a rectification report to the Shanghai Bureau of the CSRC in accordance with the requirements on May 19, 2017.

DFZQ Interim Report 2017

Section V Significant Events

Regarding to issues proposed by the regulatory authority, Orient Securities Asset Management has rectified the issues identified in areas such as related party transaction management, unusual transaction management, investor management and bond price inquiry management and implemented the rectifications on a caseby-case basis. The overall risk prevention and control was strengthened and internal control mechanism and compliance and risk management systems were improved through streamlining the process of relevant business. The main rectification measures adopted by Orient Securities Asset Management are as follows:

(1) For corporate governance, the compliance and risk management committee system was improved, more efforts were put on related party transaction management and Orient Securities Asset Management started to amend the Articles of Association to better adapt to the Norm for the Comprehensive Risk Management of Securities Firms (《證券公司全面風險管理規範》).
(2) For investment research, the requirements of the Management System for the Research Work of the Research Department of Shanghai Orient Securities Asset Management Co., Ltd. (《上海東方證券資產管理有限公司研究部研究工作管理制度》) and the Administrative Measures for the Research Equity Securities of Shanghai Orient Securities Asset Management Co., Ltd. (《上海東方證券資產管理有限公司權益類證券研究庫管理辦法》) were strictly complied with, the protection of research files was strengthened and the management of equity pool was improved.
(3) For investment management, Orient Securities Asset Management optimized the staff structure of fixed income research departments and put more human resources into credit analysis to strengthen the supervision and management of credit risk.
On May 5, 2017, the Hubei Bureau of the CSRC issued Decision on Issuing a Warning Letter ([2017] No. 6) to Citi Orient Securities Co., Ltd. to its applicant, Citi Orient. It was because Citi Orient, our subsidiary, had not complied with the auditing procedures for related parties and related party transactions, had not adopted effective investigation measures for abnormal gross profit margin, had not verified with abnormal clients, had not disclosed incompliances in time and other issues when performing its duties as the host broker of listing on NEEQ by way of introduction of 武漢銀都文化傳媒股份有限公司. Citi Orient was contrary to the Administrative Measures of Supervising Unlisted Companies and other related laws and regulations. The Hubei Bureau issued warning letter and requested Citi Orient to take it as a warning, to perform due diligence when carrying out business, and to submit a written report before June 5, 2017.

Regarding to issues proposed by the regulatory authority, Citi Orient held personnel in charge accountable for the issues. In addition, Citi Orient has commenced a comprehensive self-investigation and rectification of listing on NEEQ by way of introduction business, to further inspect and identify the problems and potential risks of listing on NEEQ by way of introduction business. Regarding to insufficient audit and irregular documents found in certain projects of 銀都傳媒, the quality control department of Citi Orient has requested all project groups to rectify and all related project groups have completed rectification.

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Interim Report 2017 DFZQ

Section V Significant Events

Meanwhile, for projects that are recommended to list on NEEQ, Citi Orient requires relevant parties to adopt more comprehensive methods of due diligence as possible as they can and recommend listing companies more carefully. For continuous supervision on the NEEQ projects, relevant parties are required by Citi Orient to communicate with and report to the local bureaus of the CSRC where listed companies operate as required and adopt more ways to identify and check the potential risks of listed companies and conduct more on-site checks as appropriate based on their actual operations and risk factors. A risk alert announcement should be issued for risks identified in a timely manner.

The Company has no controlling shareholder or de facto controller. Save as disclosed above, during the Reporting Period, none of the Company, its Board, directors, supervisors and senior management was investigated by competent authorities, imposed coercive measures by a judiciary authority or disciplinary department, transferred to a judicial authority or held criminally liable, investigated or imposed administrative penalties by CSRC, banned from access to market, identified as an unsuitable person, punished by other administrative departments, or publicly condemned by a stock exchange. None of the directors, supervisors and senior management of the Company violated any rules or regulation with regard to trading of the shares of the Company.

VIII. EXPLANATIONS ON CREDITWORTHINESS OF THE COMPANY AND ITS CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER

The Company’s largest shareholder was Shenergy Group. During the Reporting Period, the Company maintained excellent creditworthiness and there were no cases such as non-performance of an effective court judgment or any large obligation or liability remaining unpaid past their maturity date.

IX. EQUITY INCENTIVE SCHEME, EMPLOYEE INCENTIVE SCHEME AND OTHER EMPLOYEE INCENTIVE MEASURES OF THE COMPANY AND THEIR IMPACTS

During the Reporting Period, the Company did not implement any equity incentive scheme, employee incentive scheme and other employee incentive measures.

X. MATERIAL RELATED PARTY TRANSACTIONS

During the Reporting Period, the Group had no material related party transactions nor non-operating debts and indebtedness with related parties.

XI. MATTERS RELATED TO ASSET TRANSACTIONS AND CORPORATE MERGERS

There were no matters related to asset transactions or corporate merger of the Company during the Reporting Period.

XII. MATERIAL CONTRACTS AND PERFORMANCE

1. Custodian, contracting and leasing matters

During the Reporting Period, the Company was not involved in any material custodian, contracting or leasing matters.

DFZQ Interim Report 2017

Section V Significant Events

2. Guarantees

Unit: RMB100 million

External guarantees provided by the Company (excluding guarantees for subsidiaries)	External guarantees provided by the Company (excluding guarantees for subsidiaries)	External guarantees provided by the Company (excluding guarantees for subsidiaries)
Total amount of guarantees provided during
the Reporting Period (excluding guarantees for
subsidiaries)
Total balance of guarantees provided at the end of
the Reporting Period (A) (excluding guarantees for
subsidiaries)
Guarantees provided by the	Company for subsidiaries
Total amount of guarantees provided for subsidiaries			4.45
during the Reporting Period
Total balance of guarantees provided for subsidiaries			47.83
at the end of the Reporting Period (B)
Total amount of guarantees provided by the Company (including those provided for subsidiaries)
Total amount of guarantees (A+B)			47.83
Percentage of total guarantees over net assets of the			11.70
Company (%)
Including:
Amount of guarantees provided for shareholders, de facto		controllers and their related parties (C)
Amount of debt guarantees directly or indirectly			41.89
provided for parties with gearing ratio exceeding
70% (D)
Amount of total guarantees exceeding 50% of
net assets (E)
Total amount of the above three types of guarantees			41.89
(C+D+E)
Explanations on guarantees	(1)	During the Reporting Period, overseas wholly-
		owned subsidiaries of the Company have
		provided guarantees for its subsidiaries,
		relating to the issue of offshore RMB bonds and
		US bonds. As at June 30, 2017, the guarantees
		amounted to approximately RMB3.891	billion.

(2) During the Reporting Period, wholly-owned subsidiaries of the Company have provided guarantee for its wholly-owned subsidiaries, mainly relating to a guarantees for granting loans for its subsidiaries for their business development. As at June 30, 2017, the guarantees amounted to approximately RMB892 million.

Note: The amount of guarantees provided for the US bonds of the Company was all converted at the spot exchange rate of USD/RMB1：6.7744 as at June 30, 2017; the amount of guarantees provided for the HKD bonds of the Company was all converted at the spot exchange rate of HKD/RMB1：0.86792 as at June 30, 2017.

Interim Report 2017 DFZQ

Section V Significant Events

3. Other material contracts

During the Reporting Period, there were no other discloseable material contracts or transactions of the Company that have not yet been disclosed.

XIII. POVERTY ALLEVIATION WORKS OF THE LISTED COMPANY

1. Precise poverty alleviation plan

1) Basic strategies and overall objectives
Closely centering on a basic strategy of “precise poverty alleviation and precise poverty removal”, the Company has been endeavoring to promote the economic and social development in Daur Autonomous Banner of Morin Dawa (hereinafter referred to as “Morin Banner”), Hulun Buir, Inner Mongolia, and accurately meeting its industrial development needs with a view to laying a solid foundation for the poverty alleviation of Morin Banner.
2) Major tasks
① Leveraging the Company’s professional advantages in the capital market, to deeply seek financial professionals to establish a poverty alleviation system which is line with the actual conditions of Morin Banner;
② Fully utilizing the professional financial capability and advantages, to provide full-spectrum comprehensive financial services;
③ Based on the resources and industrial base of Morin Banner, to deepen such mutual cooperation to help Morin Banner build a characteristic industrial brand, which could drive the population in poverty to get rid of poverty;
④ Conducting through research on the educational conditions of recorded poor families in Morin Banner, to formulate educational aid plans for those recorded families in poverty and implement such plans so as to reduce the number of families in poverty caused by their children’ education;
⑤ Based on the natural ecological products in Morin Banner and by combination of “Internet+” model, to expand the promotion and sales channels of their characteristic agricultural products, and to facilitate those in poverty to get a stable job through consumption of their products;
⑥ Through taking full advantages of the Company’s Xindeyizhang Public Welfare Foundation (心得益彰公益基金會) and combining the intangible cultural heritages in Morin Banner, to carry out inheritance protection and promotion of those intangible cultural heritages, so as to amplify the social influence of Morin Banner and promote the local economic development.

DFZQ Interim Report 2017

Section V Significant Events

3) Guarantee measures
① The Company and Morin Banner have jointly established a leading team in charge of poverty alleviation works to together determine and resolve material cooperation matters and actively promote the implementation of such matters.
② The Company and Morin Banner have established a liaison mechanism to link each department for the implementation of ordinary communications and coordination and other works, so as to guarantee the successful carrying out of each poverty alleviation project.
③ The Company carried out visiting and investigation research for its poverty alleviation projects to provided first-hand information on the implementation of those projects.
④ The Company arranged inter-group financial experts to organize special lectures of financial knowledge for all levels of local leaders and enterprises, in order to enhance the ability of local government and enterprise to utilize capital market for development through multi-channels.

2. Summary of precise poverty alleviation during the period

1) Newly added pair-up assistance to national poverty county During the Reporting Period, the Company also signed “One Company to One County” pair-up assistance agreements with three national poverty counties, i.e. Jingle County, Shanxi, Tongyu County, Jilin and Muchuan County, Sichuan based on last year’s agreement with Morin Banner.
2) Concrete implementation of precise poverty alleviation

During the Reporting Period, the Company launched the following poverty alleviation works by centering on industrial poverty alleviation, financial poverty alleviation, public welfare poverty alleviation and poverty alleviation through consumption:

① Sound development of industrial poverty alleviation project
On March 7, 2017, the Company’s poverty alleviation group and Morin Banner Guniang farmers talked about the key issues of industrial development, such as planting processes, sorting, purchase and sale prices.

On March 8, 2017, the Company’s poverty alleviation group talked with the secretary of Xiwa’ertu Town, Morin Banner and the town chief of Baoshan on the recent development of Guniang and the 2017 Guniang industrial development plan.

On March 13, 2017, the Company’s poverty alleviation group visited the Changxing Village of Xiwa’ertu Town and the Taiyuchun Village of Baoshan Town and talked with local farmers on the planting environment, cultivated varieties, pest control, fertilization and pesticide use for Guniang.

Interim Report 2017 DFZQ

Section V Significant Events

On March 14, 2017, the Company held a training seminar on building the Guniang brand in Morin Banner, invited experts from Benlai.com to give trainings to about 100 Guniang farmers from Morin Banner.

On April 30, 2017, the Company signed a strategic agreement with Benlai.com, the domestic leading e-commerce brand of fresh food, to jointly create “Orient Guniang” brand in a pattern combined with “industry reshaping, promoting and brand co-building.”

On May 11-16, 2017, the Company, together with the experts from Benlai.com investigated the Guniang industrial development of seven natural villages of three towns in Morin Banner by sample, so as to provide key bases for the construction of the “Oriental Securities Industrial Poverty Alleviation Base”.

On June 5, 2017, under the Company’s co-ordination, the domestic leading e-commerce brand of fresh food and the leading Guniang planting and processing enterprise in Morin Banner, Mengyuan Food Limited Liability Company (蒙源食品有限責任公司) signed the “2017 Morin Banner Guniang Fresh Fruit Purchase Agreement”.

On June 12, 2017, the Company established the “Oriental Securities Industrial Poverty Alleviation Project – Morin Banner Guniang Standardized Planting Demonstrative Base” in Morin Banner with an area of 1,100 acres.

On June 21, 2017, the leaders of the Company conducted a fieldwork on the construction of “Oriental Securities Industrial Poverty Alleviation Project – Morin Banner Guniang Standardized Planting Demonstrative Base”.

② Financial poverty alleviation to strengthen local wealth-generating capacity

The Company organized financial experts to visit Hulun Buir and held a financial knowledge lecture for local inhabitants, which aims to enhance the ability and quality of leading officials at all levels to promote the economic innovation and development by sharing financial knowledge. Over 700 persons from four leading bodies such as the Hulun Buir Municipal Committee, the Municipal People’s Congress Standing Office, the Municipal Government Office and the Municipal Political Consultative Conference Office; 62 municipal departments such as the Municipal Development and Reform Commission, the Finance Office and the Finance Bureau; 30 executives of financial institutions and enterprises such as the People’s Bank Hulun Buir Central Branch, China Banking Regulatory Commission Hulun Buir Branch and the Insurance Association; as well as the related persons from all cities of each Banners within the jurisdiction involved in the training. The local government concluded that the training enhanced the awareness of local government and enterprises on China’s capital market, broadened their vision to utilise capital market for economic development, improved the participants’ work ability to apply financial knowledge and inspired the government and enterprises to find various ways in applying capital market for economic development.

DFZQ Interim Report 2017

Section V Significant Events

③ Public welfare poverty alleviation demonstrated our love

During the Reporting Period, the Company donated RMB379,400 to 77 students from the recorded poor family to fund their living expenses and school supplies, which makes them free from additional worries and avoids their families to be in poverty due to their educations.

The leaders of the Company presented the launching ceremony of national intangible cultural heritages, Lurigele dancing-national folk dance successor training courses in Morin Banner. Totaling about 120 Lurigele dancing successors were involved in the training (of which 43 students were from the recorded poor family), all of whom were from Morin Banner grassroots cultural stations and community cultural stations. The heritage training was designed to enhance their transmission skills, so that they can promote more people to participate in the promotion and cultivation of Lurigele dancing when returned to grassroots. It is expected to benefit up to 1,000 people.

The leaders of the Company visited 3 recorded poor families from Morin Banner, offered solatium and cereals amounting to RMB5,000. They greeted those poor families, listened to their voices, and encouraged farmers to build up confidence and overcome difficulties, so as to accomplish poverty alleviation as soon as possible.

During the Reporting Period, the Company and its subsidiary Orient Securities Futures donated RMB240,000 to Peizhi School in Tongyu County, Jilin, new clothes and books, etc. to 22 students of Jianhe Primary School in Muchuan County, Sichuan, RMB100,000 to the Day Care Center in Jingle County, Jilin and a library in Tongyu County, Jilin, respectively, as well as TVs to Home for the Elderly in Xihegou, Jingle County, Shanxi.

In April 2017, the Company’s Xindeyizhang Foundation cooperated with the Beijing Women and Children’s Development Foundation, namely, the Zeng Minjie & Yang Hao Mutual Development Foundation (曾敏傑楊浩聯愛基金) to launch a social worker companion project in a national poverty county, Maigaiti, Xinjiang. The project is expected to last for ten years, with a donation of RMB650,000 for the first year and consequently RMB480,000 for each year. The project is based on the local boarding center school – Xiyitidun Township Bilingual Primary School in Maigaiti County, Xinjiang, covering four major services, such as social worker classes, medical corners, health habits small plan, psychological companion plan. It aims to promote multi-unite concept and implement “growth accompany social workers” in both dimensions of physiology and psychology. Services are mainly provided to about 500 students, of whom about 200 are boarders and 34 are faculty group.

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Interim Report 2017 DFZQ

Section V Significant Events

④ Smooth implementation of poverty alleviation through consumption project

The Company purchased and recommended to purchase six featured products amounting to RMB720,000 from Morin Banner, including soybeans, black beans, green beans, red beans, white beans and rice. In 2017, the Company is estimated to help 19 persons in total from 8 recorded poor families to get rid of poverty.

In addition, the Company has signed a Platform Service Agreement on Poverty Alleviation Through Consumption in Securities Industry with Central Orient Interconnect Co. Ltd. (中證互聯股份有限公司) and those enterprises under assistance, which will actively broaden the selling channels of Morin Banner’s featured agricultural products.

The Company was awarded the “Best Product Recommendation Award” by Central Orient Interconnect Co. Ltd. for its outstanding performance in supporting national poverty county to alleviate poverty through consumption via “One Company to One County” Pair-up Assistance as securities companies.

3. Table of precise poverty alleviation work of the Company during the Reporting Period

Unit: RMB’0000

Indicator	Amount and details
I. Overall situation
Including: 1. Funds	112

Worth of materials
Number of beneficiaries in recorded poor family 19 (person)

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DFZQ Interim Report 2017

Section V Significant Events

Indicator

Amount and details

II. Contribution to segments

Poverty alleviation by industrial development

Including: 1.1 Type of industrial poverty alleviation  Agriculture and forestry project □Tourism  E-commerce □Assets income □Science and technology  Others 1.2 Number of industrial poverty alleviation 3 projects (unit) 1.3 Contribution to industrial poverty 1.56 alleviation projects 1.4 Number of beneficiaries in recorded poor family (person)

Poverty alleviation through transferring employment Including: 2.1 Contribution to trainings on vocational skills

2.2 Number of people attended trainings 800 on vocational skills (person/time) 2.3 Number of poverty-stricken people in recorded poor family who achieved employment (person)

Poverty alleviation by relocation

Including: 3.1 Number of beneficiaries under employment from relocated families (person)

Interim Report 2017 DFZQ

Section V Significant Events

Indicator Amount and details 4. Poverty alleviation by education Including: 4.1 Contribution to subsidize students 37.94 in poverty 4.2 Number of students in poverty being 77 subsidized (person) 4.3 Contribution to improve education resources in poverty areas 5. Poverty alleviation by healthcare Including: 5.1 Contribution to medical and healthcare resources in poverty areas 6.Poverty alleviation by ecological conservation Including: 6.1 Project name □Development of ecological conservation and construction □Establishment of compensation method for ecological conservation □Setting up a position for ecological public welfare □Others

6.2 Amount of contribution

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DFZQ Interim Report 2017

Section V Significant Events

Indicator

Amount and details

Protection for the most impoverished people

Including: 7.1 Amount contributed to help the three left-behind groups

7.2 Number of people of the three left-behind groups helped (person)

7.3 Amount contributed to help poor people with disabilities 7.4 Number of poor people with disabilities helped (person)

8.Poverty alleviation in the society

Including:8.1 Amount contributed to poverty alleviation in the east and west parts of the country

8.2 Amount contributed to fixed-point poverty alleviation work

8.3 Poverty alleviation fund

Other projects

Including: 9.1 Number of projects (unit) 6 9.2 Amount of contribution 110.44 9.3 Number of beneficiaries in recorded poor family (person)

9.4 Description for other projects

III. Awards obtained (details and class)

Central Orient Interconnect Co. Ltd. was awarded the “Best Product Recommendation Award (最佳產品推薦獎)”

Interim Report 2017 DFZQ

Section V Significant Events

4. Subsequent precise poverty alleviation plan

1) Joint hands with Benlai.com to create Morin Banner “Guniang” industrial brand In June 2017, under the Company’s co-ordination, Benlai.com and the leading Guniang planting and processing enterprise in Morin Banner signed the “2017 Morin Banner Guniang Fresh Fruit Purchase Agreement (《2017 年莫旗菇娘鮮果採購協議》)” and established the “Oriental Securities Industrial Poverty Alleviation Project – Morin Banner Guniang Standardized Planting Demonstrative Base (東方證券產業扶貧項目 – 莫旗菇娘標準化種植示範基地)” in Morin Banner.

The Company will join hands with Benlai.com to create Morin Banner Guniang brand; select Guniang products by the inspection standard for products of Benlai.com; conduct brand packaging and building for Morin Banner Guniang; promote Guniang products through the advantages of the Group as well as the channels advantages of Benlai.com.

2) Constant follow up the distribution of educational poverty alleviation funds to guarantee the effects of precise poverty alleviation

The Company’s subsidies to 77 poor students from Ni’erji No.1 Middle School in Morin Banner will be distributed based on their 2017 school time by installment. To ensure the precise usage of educational poverty alleviation funds on students from recorded poor family, the Company’s poverty alleviation group has formulated the 2017 Implementation Plan for Educational Poverty Alleviation on High School Students from Recorded Poor Family in Morin Banner by DFZQ. Subsequently, the Company will continue to track the distribution of the poverty alleviation fund, so as to ensure that the precise poverty alleviation is effectively implemented.

3) Promote sustained inheritance of intangible cultural heritage project “Lurigele dancing” Xindeyizhang Public Welfare Foundation was set up by the Company in 2015, during when it has accumulated seasoned experience and built up a professional team to carry out inheritance protection and promotion of those intangible cultural heritages. The Company has successfully built two brand public welfare projects, i.e. “Benefit by Heart Together | Zhijin” project and “A Beautiful City in Western China | Dunhuang”, which has received social widespread praise and effectively achieved its purpose of protection and inheritance.

Leveraging on the Xindeyizhang Public Welfare Foundation’s experience in intangible cultural heritages protection and promotion, the Company will bring advantage in assisting Morin Banner to promote intangible cultural heritages projects such as Lurigele dancing. In addition to subsidize the Lurigele dancing national folk dance successor training courses, Lurigele Dancing into Campus and Lurigele Dancing Folk Dancing Competition will also be funded. The Company will support the protection of Morin Banner and inheritance of Lurigele dancing in a variety of ways, while trying to create road performance and training opportunities for them. Meanwhile, the Company will bruit Morin Banner to the society while promoting its intangible cultural heritages projects.

DFZQ Interim Report 2017

Section V Significant Events

4) Communicate and promote the progress of financial poverty alleviation work for Morin Banner Based on the needs of Morin Banner’s government or its enterprises as well as feasibility study on relevant projects, fully leverage the Company’s professional capability and advantages to provide financial services for Morin Banner in respect of initial public offerings, bonds underwriting and issuance, NEEQ quotation and financing, issue of financing instruments after quotation as well as market-maker transactions. In terms of financial knowledge popularity, based on the working needs of Morin Banner’s poverty alleviation, the Company will provide financial knowledge popularity for Morin Banner, and provide financing consultancy and business training in capital market for its government and enterprises.
5) Striving to extent the scope of “One Company to One County” Pair-up Assistance At the end of the Reporting Period, the Company has signed “One Company to One County” Pair-up Assistance agreements with four state poverty counties and will try to extend the scope of assistance subsequently, in order to fulfill increased social responsibilities.
6) Ensure effectively implementation of poverty alleviation through consumption project The Company purchased and recommended to purchase featured agricultural products from Morin Banner Xinxinyuan Plantation Specialty Cooperative (莫旗鑫鑫源種植專業合作社) and provided assistance to recorded poor family by paying those engaged with the cooperative. To ensure effectively implementation of such project, the Company’s poverty alleviation group has formulated the 2017 Implementation Plan for Poverty Alleviation through Consumption in Morin Banner by DFZQ and will strictly implement above project to ensure its effectively implementation.

XIV. CONVERTIBLE CORPORATE BONDS

During the Reporting Period, neither the Company nor its subsidiaries had issued convertible corporate bonds.

XV. DESCRIPTION OF THE ENVIRONMENTAL PROTECTION WORK PERFORMED BY COMPANIES AND THEIR SUBSIDIARIES LISTED AS KEY POLLUTANTDISCHARGING UNITS BY ENVIRONMENTAL PROTECTION DEPARTMENTS

 Not Applicable

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Interim Report 2017 DFZQ

Section V Significant Events

XVI. DESCRIPTION OF OTHER SIGNIFICANT EVENTS

(I) Descriptions, reasons and effects of changes in accounting policies, accounting estimates and accounting methods as compared with previous accounting period  Not Applicable
(II) Descriptions, correction amounts, reasons and effects of correction of material accounting errors that need to be restated during the Reporting Period
Not Applicable

(III) Others

1) Newly-established securities branches by the Company The Company received the Reply on Approving Establishment of 33 Securities Branches by 東方證券股份有限公司 (Hu Zheng Jian Xu Ke [2016] No. 74) from Shanghai Bureau of the CSRC, pursuant to which the Company was authorized to establish one securities branch in each of the 33 cities including Beijing and Shanghai, etc.. The branches would engage in securities brokerage; margin financing and securities lending; securities investment advisory; financial consultancy in relation to securities transactions and securities investment activities; distribution of securities investment funds; provision of intermediary and referral business for futures companies; distribution of financial products. The establishment model of the information system is B-type.

On January 12, 2017, the Company received the Letter on Approving Extension of the Establishment Duration of 27 Securities Branches for 東方證券股份有限公司 (Hu Zheng Jian Ji Gou Zi [2017] No. 21) from Shanghai Bureau of the CSRC, which approved the extension of the establishment duration of 27 securities branches but required the Company to complete the establishment of such securities branches within six months with immediate effect.

During the Reporting Period, the Company completed the establishment of total 11 securities branches, as a result of which the total number of the Company’s securities branches amounted to 133. Details of the newly-established branches are as follows:

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DFZQ Interim Report 2017

Section V Significant Events

	Name of branch Address Number of approval document Date of approval Date on which the license was obtained

Section V Significant Events

In July 2017, the Company completed the establishment of the rest 20 securities branches progressively, as follows:

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|||||
|---|---|---|---|
|Date on which|
|the license was|
|No.|Name of branch|Address|obtained|
|1|Wuhu Beijing Centre Road Securities|No. 104 & 501 Jinghu Star, No.1|July 5, 2017|
|Branch of 東方證券股份有限公司|Beijing Centre Road, Jinghu District,|
|Wuhu, Anhui, the PRC|
|2|Changchun Ziyou Road Securities|Suite 110 Block B, First International|July 5, 2017|
|Branch of 東方證券股份有限公司|Centre, No. 3999 Ziyou Road, Er’dao|
|District, Changchun, Jilin, the PRC|
|3|Tianjin Nanma Road Securities|No. 1201 Nanma Road, Nankai|July 5, 2017|
|Branch of 東方證券股份有限公司|District, Tianjin, the PRC|
|4|Xuchang Xudu Road Securities|1-2/F, Block A, Huitong Commercial|July 5, 2017|
|Branch of 東方證券股份有限公司|Garden, Xudu Road South & Wisdom|
|Building West, Dongcheng District,|
|Xuchang, the PRC|
|5|Changzhou Longjin Road Securities|Suite 102,1103&1104 Building 3,|July 6, 2017|
|Branch of 東方證券股份有限公司|Modern Media Centre, No. 1590|
|Longjin Road, Xinbei District,|
|Changzhou, the PRC|
|6|Qingdao Miaoling Road Securities|No. 36-1, 101A, Miaoling Road,|July 6, 2017|
|Branch of 東方證券股份有限公司|Laoshan|District,|Qingdao,|
|Shandong, the PRC|
|7|Tangshan Beixin West Road|No. 36-13 Beixin West Road,|July 6, 2017|
|Securities Branch of|東方證券股份|Zhangdali Scenic Garden, Lubei|
|有限公司|District, Tangshan, Hebei, the PRC|
|8|Jiangmen Yingbin Avenue Centre|Suite 109 & 2208-2209 Block 1,|July 6, 2017|
|Securities Branch of|東方證券股份|No. 118 Yingbin Avenue Centre,|
|有限公司|Pengjiang District, Jiangmen, the|
|PRC|
|9|Dalian Taiyuan Street Securities|No. 177-13 Taiyuan Street, Shahekou|July 12, 2017|
|Branch of 東方證券股份有限公司|District, Dalian, Liaoning, the PRC|
|10|Dongguan Hongfu Road Securities|No. 104 Huicheng Building, No. 102|July 12, 2017|
|Branch of 東方證券股份有限公司|Hongfu Road, Nancheng Street,|
|Dongguan, the PRC|

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DFZQ Interim Report 2017

Section V Significant Events

	No. Name of branch Address Date on which the license was obtained

Section V Significant Events

No. Name of branch

Address

Date on which the license was obtained

20 Yueyang Jin’e Middle Road Block 1, Shengxincheng Caizhi July 19, 2017 Securities Branch of 東方證券股份 Mansion, No. 408 Jin’e Middle 有限公司 Road, Yueyanglou District, Yueyang, Hunan, the PRC
2) Relocation of securities branches of the Company
① Shangyu Fortune Plaza Securities Branch of 東方證券股份有限公司 was relocated within the city, from 1/F, Building 8, Fortune Plaza, Baiguan Street, Shangyu District, Shaoxing, Zhejiang, the PRC to 1/F, Xintianlong Building, No. 2389 Northern of Liangzhu Avenue, Baiguan Street, Shangyu District, Shaoxing, Zhejiang, the PRC. The name of the branch was changed to Shaoxing Shangyu Liangzhu Avenue Securities Branch of 東方證券股份有限公司 .
② Fuzhou Wusi Road Securities Branch of 東方證券股份有限公司 was relocated within the city, from 6/F, Golden Lily Hotel, No. 252 Wusi Road, Fuzhou, Fujian, the PRC to 1&5/F, Sanmu Building, No. 93 Qunzong East Road, Xingang Street, Taijiang District, Fuzhou, Fujian, the PRC. The name of the branch was changed to Fuzhou Qunzong East Road Securities Branch of 東方證券股份有限公司 .
③ Xiangtan Hedong Avenue Securities Branch of 東方證券股份有限公司 was relocated within the city, from 4/F, Tanshui Building, No. 3 Changtan Road, Yuetang District, Xiangtan, Hunan, the PRC to 0101002-0101003 D1-2 Building, Lot D, Xiangyinxicheng, No. 3 Huxiang North Road, Baota Street, Yuetang District, Xiangtan, the PRC. The name of the branch was changed to Xiangtan Huxiang North Road Securities Branch of 東方證券股份有限公司 .
④ Chengdu Tianxiang Temple Street Securities Branch of 東方證券股份有限公司 was relocated within the city, from 2/F, Tianxiang Building, No. 118 Wangping Street, Chenghua District, Chengdu, Sichuan, the PRC to Suite 2012 & 2013, 21/F, Block 1, No. 9 Jianshe Road, Chenghua District, Chengdu, the PRC. The name of the branch was changed to Chengdu Jianshe Road Securities Branch of 東方證券股份有限公司 .
⑤ Yiwu Binwang Road Securities Branch of 東方證券股份有限公司 was relocated within the city, from Building 11 East, No. 68 Binwang Road, Choucheng Street, Yiwu, Zhejiang, the PRC to No. 113 Gongren West Road, Yiwu, Zhejiang, the PRC. The name of the branch was changed to Yiwu Gongren West Road Securities Branch of 東方證券股份有限公司 .

DFZQ Interim Report 2017

Section V Significant Events

3) Capital increase into subsidiaries

During the Reporting Period, the Company increased capital in the amount of RMB600 million and RMB300 million to Orient Securities Innovation Investment respectively and completed the changes in industrial and commerce registration in relation to the change in registered capital of Orient Securities Innovation Investment to RMB2.0 billion. This capital increase has been considered and approved at the president working meeting of the Company.

4) Implementation of profit distribution

The implementation of the Company’s profit distribution plan for the year 2016 was accomplished on August 2, 2017. Based on the total share capital of 6,215,452,011 Shares as at December 31, 2016, a cash dividend of RMB1.50 (inclusive of tax) for every 10 Shares had been distributed to A Shareholders and H Shareholders whose names appear on the register of members of the Company on the record date, with a total cash dividend of RMB932,317,801.65, representing 40.29% of net profit for the year attributable to the shareholders of the listed company in the consolidated statements.

5) Issuance of corporate bonds

Upon approval of the CSRC [2017] No. 974, the Company is approved to carry out public issuance of corporate bonds to qualified investors with par value no more than RMB4.0 billion (including RMB4.0 billion). On August 3, 2017, 東方證券股份有限公司 has completed the related work of the 2017 public issuance of corporate bonds through off-line price consultations to the qualified investors. The issuing size of the bonds was RMB4.0 billion, with a coupon rate of 4.98%.

XVII. CORPORATE GOVERNANCE

The Company always pursues a better governance structure and system building. As a public company listed in both Mainland China and Hong Kong, the Company has operated its business in a standard manner and in strict compliance with the requirements under the relevant laws, regulations and regulatory documents in the places where the shares of the Company are listed. The Company has made great efforts to maintain and improve the Company’s good image in the market. During the Reporting Period, the corporate governance of the Company was in compliance with the requirements under the PRC Company Law, the PRC Securities Law, the Regulatory Rules for Securities Companies, the Rules for Governance of Securities Companies, the Code of Corporate Governance for Listed Companies, the Corporate Governance Code and other relevant laws and regulations as well as the Articles of Association, and the corporate governance standards were continuously improved; the governance structure of “general meeting of shareholders, the Board, the supervisory committee and senior management” of the Company allowed clear separation of powers and duties, effectively balance of authority and scientific decisions, and therefore guaranteed the scientific and regulated operating of the Company; the Company kept on optimizing the establishment of the internal control management system, which enhanced the integrity, reasonableness and effectiveness of the internal control function. For a long time, the Company has been working on the continuous enhancement of the corporate governance structure and system building.

Interim Report 2017 DFZQ

Section V Significant Events

During the Reporting Period, the operation and management of the Company were standardized and orderly, allowing the Company to formulate and continuously optimize its rules and procedures in strict compliance with the relevant requirements under laws and regulations and regulatory documents to regulate the operation of the Company. During the Reporting Period, in order to enhance corporate governance and risk management and control, the Company amended and improved the Basic System for Comprehensive Risk Management and the Administrative Measures of Liquidity Risk, and formulated the Provisional Administrative Measures of Internal Control and Management, which had been considered and approved by the Board. During the Reporting Period, the Company convened two general meetings, seven Board meetings, three meetings of the supervisory committee, two meetings of the Remuneration and Nomination Committee of the Board, four meetings of the Audit Committee, and four meetings of the Compliance and Risk Management Committee, totaling to ten meetings of the special committees under the Board. The convening procedures and voting procedures of the general meetings, Board meetings and meetings of the supervisory committee of the Company were legal and valid. During the Reporting Period, the Company continuously strengthened the investor relationship management and information disclosure, hence the investor relationship management was standardized and professional, and the information disclosed was true, accurate, complete, timely and fair, which enhanced the transparency of the Company continuously.

By the formulation, continuous improvement and effective implementation of systems, the corporate governance structure of the Company became more standardized and the level of corporate governance kept on improving. There was no discrepancy between the actual corporate governance of the Company and the requirements of the PRC Company Law and relevant regulations of CSRC. Meanwhile, the Company was in strict compliance with all the code provisions of the Corporate Governance Code, meeting most of the requirements for the recommended best practices set out in the Corporate Governance Code.

There was no discrepancy between the actual corporate governance of the Company and the requirements of the PRC Company Law, relevant regulations of CSRC and the Corporate Governance Code.

(I) Shareholders and general meetings

The Company convened the general meetings in strict compliance with the requirements under the Articles of Association and Rules of Procedure for Shareholders’ General Meetings, to ensure that all shareholders were treated equally and were able to fully exercise their rights.

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DFZQ Interim Report 2017

Section V Significant Events

(II) Directors and the Board

The Company appointed and changed its directors in strict compliance with the relevant provisions of the Articles of Association. The number, composition and qualification of the directors were in compliance with the applicable laws and regulations. As at the end of the Reporting Period, the Board comprised 16 directors, among which two were executive directors, eight were non-executive directors and six were independent non-executive directors. All directors are able to perform their duties in due diligence and protect the interests of the Company and the shareholders as a whole. The Strategy Development Committee, Audit Committee, Compliance and Risk Management Committee, Remuneration and Nomination Committee of the Board were assigned specific duties, clear authorization and responsibilities, and operated in high efficiency. The Audit Committee and the Remuneration and Nomination Committee were chaired by an independent non-executive director, and comprised exclusively non-executive directors with over half of the members being independent non-executive directors.

The Audit Committee was established under the Board, which is in compliance with the relevant requirements of the CSRC, SSE and Hong Kong Listing Rules. As at the end of Reporting Period, the Audit Committee comprised five members, namely, Mr. Pan Fei, Mr. Wu Junhao, Mr. Xu Jianguo, Mr. Xu Guoxiang and Mr. Wei Anning. The Audit Committee is mainly responsible for facilitating communication between the internal and external auditors of the Company, supervision and review of the audit process, and provision of professional advice to the Board. The Audit Committee has reviewed and confirmed the interim results for the six months ended June 30, 2017 and the 2017 interim financial report of the Company, and has made no objection to matters such as the accounting policies adopted by the Company.

On July 6, 2017, the Company received the resignation report from Mr. Pan Fei, an independent non-executive director, who resigned from the position of the independent non-executive director of the third session of the Board and the position of the chairman of the Audit Committee due to personal reasons (career arrangement). The Company will endeavor to find an appropriate candidate to act as an independent non-executive director as soon as possible and appoint a new independent non-executive director and the chairman of the Audit Committee of the Board following due procedures.

Following the resignation of Mr. Pan, the requirements relating to at least one of the independent non-executive directors of the Company and at least one member of the Audit Committee must have appropriate professional qualifications or accounting or related financial management expertise under Rules 3.10(2) and 3.21 of the Hong Kong Listing Rules will not be met by the Company and the position of chairman of the Audit Committee shall be vacated. The Company shall search for a suitable candidate to fill the vacancy in provided time as required under Rules 3.11 and 3.23 of the Hong Kong Listing Rules. Mr. Jin Qinglu has been nominated as the independent non-executive director of the Company and the chairman of the Audit Committee on the Board meeting held on August 7, 2017 by resolution. The new appointment of independent non-executive director and the chairman of the Audit Committee by the Company will compliance with the relevant legal procedures, but subject to the approval of the general meeting of the Company and the CSRC.

Interim Report 2017 DFZQ

Section V Significant Events

(III) Supervisors and supervisory committee

The supervisory committee of the Company currently comprises seven supervisors, among which three are employee representative supervisors and four are non-employee representative supervisors. The qualification of the supervisors and the composition of the supervisory committee are in compliance with laws and regulations. All supervisors of the Company are able to perform their duties in due diligence, take accountability to shareholders, monitor the legality and compliance of the duty performance by the finance department, Board members and senior management of the Company, and provide recommendations and suggestions to the Board and senior management regarding relevant matters.

(IV) Senior management

Procedures for the appointment of the senior management of the Company are in compliance with the rules under the PRC Company Law and the Articles of Association. The senior management of the Company conducts business in compliance with laws, regulations and authorizations from the Board, with a view to maximizing shareholders’ value and social benefits.

(V) Information disclosure

During the Reporting Period, the Company properly carried out information disclosure and was able to disclose relevant information in a manner that is true, accurate, complete, timely and fair and in strict accordance with the applicable laws, regulations and regulatory documents in the PRC and Hong Kong where its shares are listed. Meanwhile, the Company made more efforts to maintain the confidentiality of insider information, performed its obligation of insider registration, management and confidentiality diligently in strict compliance with all requirements relating to the procedures and internal control measures of handling and publishing of insider information under the System regarding Insider Registration, Management and Confidentiality.

On August 9, 2017, the Company received the Circular on the Assessment Results of Information Disclosure by Listed Companies in 2016 (《關於2016年度上市公司信息披露工作評價結果的通報》) from the SSE, according to which the Company has received a rate A (outstanding in information disclosure) in respect of information disclosure for two consecutive years after its A Share listing.

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DFZQ Interim Report 2017

Section VI Changes in Ordinary Shares and Information on Shareholders

I. CHANGES IN SHARE CAPITAL

(I) Changes in shares

There were no changes in total number of shares or share capital structure of the Company during the Reporting Period.

(II) Changes in Restricted Shares

Not Applicable

II. INFORMATION ON SHAREHOLDERS

(I) Total number of shareholders:

Total number of holders of ordinary 151,983 (among which 151,919 holders of A Shares and shares as at the end of the Reporting 64 registered holders of H Shares) Period (accounts)

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Interim Report 2017 DFZQ

Section VI Changes in Ordinary Shares and Information on Shareholders

(II) The table below sets out the shareholdings of the top ten shareholders, the top ten shareholders of circulating shares (or shareholders not subject to restriction on sales) as at the end of the Reporting Period

Unit: share

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|||||||||
|---|---|---|---|---|---|---|---|
|Shareholdings of the top ten shareholders|
|Number of|
|Changes in|shares|
|number of|held as at|Number of|Pledged or frozen|
|shares during the|the end of the|restricted|Status of|Nature of|
|Name of shareholders (Full name)|Reporting Period|Reporting Period|Percentage (%)|shares held|shares|Number of shares|shareholders|
|Shenergy (Group) Company Limited|–|1,537,522,422|24.74|1,537,522,422|Nil|–|State-owned|
|legal person|
|Hong Kong Securities Clearing Company|+4,000|1,026,972,400|16.52|–|Nil|–|Offshore legal|
|Nominees Limited|person|
|China Securities Finance Corporation|+57,684,257|310,131,177|4.99|–|Nil|–|State-owned|
|Limited|legal person|
|Shanghai Haiyan Investment|–|286,271,333|4.61|–|Nil|–|State-owned|
|Management Company Limited|legal person|
|Shanghai United Media Group|–|246,878,206|3.97|–|Nil|–|State-owned|
|legal person|
|Shanghai Electric (Group) Corporation|–|194,073,938|3.12|194,073,938|Nil|–|State-owned|
|legal person|
|China Post Group Corporation|–|187,866,579|3.02|–|Nil|–|State-owned|
|legal person|
|Shanghai Jinqiao Export Processing|–|165,953,687|2.67|–|Nil|–|Domestic non-|
|Zone Development Co., Ltd. (上海金橋|state-owned|
|出口加工區開發股份有限公司)|legal person|
|Greatwall Information Industry Co., Ltd.|–|143,000,000|2.30|–|Pledged|20,000,000|Domestic non-|
|state-owned|
|legal person|
|Shanghai Construction Group Co., Ltd.|–|133,523,008|2.15|133,523,008|Nil|–|State-owned|
|legal person|
|Related party relationship or|Shenergy (Group) Company Limited, Shanghai Electric (Group) Corporation and Shanghai Construction Group Co., Ltd. are the subsidiaries|
|parties acting in concert among|of the State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government. The Company is not aware|
|above shareholders|of any other related party relationship or any parties acting in concert among other shareholders.|

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DFZQ Interim Report 2017

Section VI Changes in Ordinary Shares and Information on Shareholders

Unit: share

Shareholdings of the top ten shareholders of non-restricted shares

	Number of	Type and number of shares	Type and number of shares
	circulating
	non-restricted
Name of shareholders	shares held	Type	Number
Hong Kong Securities Clearing Company	1,026,972,400	Overseas listed	1,026,972,400
Nominees Limited		foreign shares
China Securities Finance Corporation Limited	310,131,177	RMB ordinary	310,131,177
		shares
Shanghai Haiyan Investment Management	286,271,333	RMB ordinary	286,271,333
Company Limited		shares
Shanghai United Media Group	246,878,206	RMB ordinary	246,878,206
		shares
China Post Group Corporation	187,866,579	RMB ordinary	187,866,579
		shares
Shanghai Jinqiao Export Processing Zone	165,953,687	RMB ordinary	165,953,687
Development Co., Ltd.		shares
Greatwall Information Industry Co., Ltd.	143,000,000	RMB ordinary	143,000,000
		shares
Shanghai Educational Development Co., Ltd.	92,188,251	RMB ordinary	92,188,251
(上海市教育發展有限公司)		shares
Shanghai Tongyi Asset Management Co., Ltd.	90,803,988	RMB ordinary	90,803,988
(上海彤翼資產管理有限公司)		shares
Greenland Holding Group Company Limited	80,685,407	RMB ordinary	80,685,407
(綠地控股集團有限公司)		shares
Related party relationship or parties acting in	Shanghai Tongyi Asset Management		Co., Ltd is wholly-
concert among above shareholders	owned by Greenland Holding Group		Company Limited.
	The Company is not aware of any other related party
	relationship or any parties acting in concert among other
	shareholders.

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Interim Report 2017 DFZQ

Section VI Changes in Ordinary Shares and Information on Shareholders

Shareholdings of the top ten shareholders of restricted shares and restrictions

Unit: share

	Listing	and trading of restricted shares	and trading of restricted shares
				Number of
				shares newly
		Number of		added for
		restricted	Time for listing	listing and
No.	Name of restricted shareholders	shares held	and trading	trading	Restriction
1	Shenergy (Group) Company Limited	1,537,522,422	March 23, 2018	–	Lock-up period of
					36 months
2	Shanghai Electric (Group) Corporation	194,073,938	March 23, 2018	–	Lock-up period of
					36 months
3	Shanghai Construction Group Co., Ltd.	133,523,008	March 23, 2018	–	Lock-up period of
					36 months
4	Shanghai Binfen Trade Development Co., Ltd.	66,539,635	March 23, 2018	–	Lock-up period of
	(上海繽紛商貿發展有限公司)				36 months
5	National Council for Social Security Fund	65,288,341	March 23, 2018	–	Lock-up period of
	(Transfer Account No.2) (全國社會保障基金				36 months
	理事會轉持二戶)
6	Shanghai International Trade & Investment	33,269,819	March 23, 2018	–	Lock-up period of
	Developing Co., Ltd.(上海市外經貿投資				36 months
	開發有限公司)
7	Shanxi Zhuorong Investment Co., Ltd.	20,000,000	May 19, 2018	–	Lock-up period of
	(山西卓融投資有限公司)				38 months
8	Weida Hi-Tech Holding Co., Ltd.	12,000,000	February 14, 2018	–	Lock-up period of
	(威達高科技控股有限公司)				35 months
	Related party relationship or parties acting in	Shenergy (Group) Company Limited, Shanghai Electric (Group) Corporation,
	concert among above shareholders	Shanghai Construction Group Co., Ltd., Shanghai Binfen Trade Development
		Co., Ltd. and Shanghai International Trade & Investment Developing Co., Ltd.
		are the subsidiaries of the State-owned Assets Supervision and Administration
		Commission of Shanghai Municipal Government. The Company is not aware
		of any other related	party relationship or	any parties acting in concert among
		other shareholders.

(III) Strategic investors or general legal persons became the top ten shareholders due to placement of new shares

Not Applicable

DFZQ Interim Report 2017

Section VI Changes in Ordinary Shares and Information on Shareholders

III. CHANGES OF CONTROLLING SHAREHOLDERS OR DE FACTO CONTROLLERS  Not Applicable

IV. SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES

As at June 30, 2017, to the best knowledge of the Company and its directors, having made all reasonable enquiries, the following substantial shareholders and other parties (excluding the directors, supervisors and chief executive of the Company) had an interest or short position in the shares or underlying shares of the Company, which is required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO and has been entered in the register kept by the Company according to Section 336 of the SFO:

	Name of shareholders Type of share Nature of interests Number of shares(Note 1) Approximate percentage of total share of relevant class in issue (%) (Note 2) Approximate percentage of total shares in issue (%) (Note 2)

Section VI Changes in Ordinary Shares and Information on Shareholders

Notes:

(L) represents the long position.
As at June 30, 2017, the Company has issued 6,215,452,011 shares in total, including 5,188,372,011 A Shares and 1,027,080,000 H Shares.
Shanghai Haiyan Investment Management Company Limited is wholly owned by Shanghai Tobacco (Group) Company, which in turn is wholly owned by China National Tobacco Corporation. Therefore, each of China National Tobacco Corporation and Shanghai Tobacco (Group) Company is deemed to be interested in the shares of the Company held by Shanghai Haiyan Investment Management Company Limited under the SFO.
Kaiser Century Investments Limited is owned as to 100% by Hung Jia Finance Limited. Hung Jia Finance Limited is owned as to 50% by each of Mr. Zhu Lijia and his spouse Ms. Sun Hongyan. Therefore, each of Mr. Zhu Lijia, Ms. Sun Hongyan and Hung Jia Finance Limited is deemed to be interested in the shares of the Company held by Kaiser Century Investments Limited under the SFO.
Raise Sino Investments Limited is owned as to 100% by Chu Lam Yiu.
BOCOM International Global Investment Limited is wholly owned by BOCOM International Asset Management Limited. BOCOM International Asset Management Limited is wholly owned by BOCOM International Holdings Company Limited, which in turn is wholly owned by Bank of Communications (Nominee) Company Limited. Bank of Communications (Nominee) Company Limited is wholly owned by Bank of Communications Co., Ltd. Therefore, each of Bank of Communications Co., Ltd., Bank of Communications (Nominee) Company Limited, BOCOM International Holdings Company Limited and BOCOM International Asset Management Limited is deemed to be interested in the shares of the Company held by BOCOM International Global Investment Limited under the SFO.

Save as disclosed above, as at June 30, 2017, none of the other substantial shareholders or parties have any interests or short positions in the shares or underlying shares of the Company which are required to be recorded in the register required to be kept pursuant to Section 336 of the SFO.

V. DIRECTORS’, SUPERVISORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES OR DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at June 30, 2017, according to the information available to the Company and so far as the directors are aware, none of the directors, supervisors or chief executive of the Company had interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (as defined under the Part XV of the SFO), which are required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which are taken or deemed to have under such provisions of the SFO) or which would be required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or would be required, pursuant to the Model Code, to be notified to the Company and the Hong Kong Stock Exchange.

VI. REPURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

During the Reporting Period, neither the Company nor any of its subsidiaries has repurchased, sold or redeemed any of the listed securities of the Company.

DFZQ Interim Report 2017

Section VII Preferred Shares

During the Reporting Period, the Company had no preferred shares.

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Interim Report 2017 DFZQ

Section VIII Directors, Supervisors, and Senior Management

I. CHANGES IN SHAREHOLDING

(I) Changes in shareholding of current and resigned directors, supervisors and senior management during the Reporting Period
During the Reporting Period, none of the existing and resigned directors, supervisors and senior management of the Company held any shares of the Company.
(II) Equity incentives granted to directors, supervisors and senior management during the Reporting Period

During the Reporting Period, no equity incentives were granted to the directors, supervisors or senior management of the Company.

II. CHANGES IN DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY

On July 6, 2017, the Board of Directors received the written resignation tendered by Mr. Pan Fei, an independent non-executive director of the Company. Due to personal affairs (career arrangement), Mr. Pan Fei resigned from the positions of director of the third session of the Board and the chairman of the Audit committee. Upon his resignation, Mr. Pan Fei will not hold any position in the Company. The Company published an announcement on the resignation of an independent non-executive director on July 6, 2017.
On August 7, 2017, the Resolution on the Election of the Independent Non-executive Director of the Company was considered and passed at the 32th meeting of the third session of the Board, pursuant to which, Mr. Jin Qinglu has been nominated as a candidate for the independent non-executive director of the third session of the Board for a term commencing from the date of approval at the shareholders’ general meeting and obtaining the qualification to serve as an independent director from the CSRC until the expiry of the term of the third session of the Board. The appointment of Mr. Jin Qinglu is subject to consideration at the shareholders’ general meeting of the Company. The Company published an announcement on the proposed appointment of an independent non-executive director and appointment of member of special committees under the Board on August 7, 2017.

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DFZQ Interim Report 2017

Section VIII Directors, Supervisors, and Senior Management

III. OTHER INFORMATION

(I) Securities Transactions of Directors, Supervisors and Relevant Employees

The Company has adopted the standards set out in the Model Code as the code of conduct regarding the securities transactions conducted by the directors, supervisors and relevant employees of the Company. After the Company made specific inquiries, all directors and supervisors confirmed that they have complied with the requirements set out in the Model Code during the Reporting Period. The Company found no breach of the relevant guidelines by the relevant employees. During the Reporting Period, no present and resigned directors, supervisors or senior management of the Company held shares or share options, or were granted restricted shares of the Company.

(II) Changes in Material Information of Directors and Supervisors

Mr. Chen Bin, a non-executive director of the Company, has served as the deputy general manager of Shanghai Haiyan Investment Management Company Limited since February 2017.
Mr. Li Xiang, a non-executive director of the Company, ceased to be the director of the operation management office of Shanghai United Media Group since May 2017. Mr. Li Xiang has served as the president of Shanghai Xinhua Media Co., Ltd. since June 2017.
Mr. Wei Anning, an independent non-executive director of the Company, has served as the director of Yantai Changyu Pioneer Wine Co Ltd since June 2017.
Mr. Wu Zhengkui, a supervisor of the Company, ceased to be the directors of Nanjing Urban Construction and Development (Group) Co., Ltd. (南京市城市建設開發(集團)有限責任公司) and Shanghai Rural Commercial Bank Co., Ltd. since March 2017.
Mr. Liu Wenbin, a supervisor of the Company, has served as the chief financial officer of China Greatwall Technology Group Co., Ltd. since February 2017.

Save as disclosed above, there was no other material change in the information of directors and supervisors of the Company during the Reporting Period according to Rule 13.51B of the Hong Kong Listing Rules.

(III) Service Contracts of Directors and Supervisors

According to Rules 19A.54 and 19A.55 of the Hong Kong Listing Rules, the Company has entered into contracts with directors and supervisors of the Company in relation to (among others) compliance with the relevant laws and regulations and the Articles of Association as well as the arbitration provisions. Save as disclosed above, the Company has not entered and does not recommend to enter into any service contracts with any directors or supervisors of the Company in their respective capacity as director/supervisor (except those expire in one year or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

Interim Report 2017 DFZQ

Section VIII Directors, Supervisors, and Senior Management

(IV) Employees and Remuneration Policy

As at the end of the Reporting Period, the Group had 4,369 employees, of whom 3,165 were employed by the Parent Company and 1,204 were employed by the subsidiaries.

The Company emphasizes the recruitment, motivation, training and use of talents, and adopted a salary system based on position salary and performance bonus. The remuneration level is linked to the value of the position, local market rates and performance evaluation results, so as to ensure “highest priority is given to efficiency while taking fairness into account”. Pursuant to the applicable laws and regulations of the PRC, the Company entered into a labor contract with each of its employees to establish an employment relationship. The labor contract contains the provisions relating to a contract term, working hours, rest and vacation, labor remuneration and insurance benefits, labor protection and conditions, as well as modification and termination of the contract.

Under the applicable laws and regulations of the PRC, the Company purchased various social insurance policies (pension insurance, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance) and established housing provident fund for its employees. It made contributions to the above social insurance and housing provident fund on time and in full. Meanwhile, the Company, in accordance with the applicable PRC regulations, also established a corporate annuity system and supplementary medical insurance system in 2006, which provided supplementary pension and medical protection to employees.

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DFZQ Interim Report 2017

Section IX Corporate Bonds

I. BASIC INFORMATION OF CORPORATE BONDS

Unit: RMB100 million

					Bonds	Interest	Repayment of principal
Name of bonds	Abbreviation	Code	Issuing date	Maturity date	balance	rate(%)	and interest	Trading venue
2014 Corporate Bonds issued	14 Orient	123021	August 26, 2014	August 26, 2019	60	6.00	Interest payable annually	SSE
by東方證券股份有限公司	Securities						and principal to be repaid
	Bonds						upon maturity in one
							lump sum
2015 Corporate Bonds publicly	15 Orient	136061	November 26,	November 26,	120	3.90	Interest payable annually	SSE
issued by東方證券股份	Securities		2015	2020			and principal to be repaid
有限公司	Bonds						upon maturity in one
							lump sum
2017 Corporate Bonds non-	17 Orient	145576	June 9, 2017	June 9, 2020	40	5.30	Interest payable annually	SSE
publicly issued by	Securities 01						and principal to be repaid
東方證券股份有限公司							upon maturity in one
(first tranche) Type 1							lump sum
2017 Corporate Bonds non-	17 Orient	145577	June 9, 2017	June 9, 2022	10	5.50	Interest payable annually	SSE
publicly issued by	Securities 02						and principal to be repaid
東方證券股份有限公司							upon maturity in one
(first tranche) Type 2							lump sum

Interest payment and repayment of corporate bonds

During the Reporting Period, the Company fully paid the interest of corporate bonds on time in accordance with the covenants in the prospectus, and did not repay any corporate bonds.

Other information on corporate bonds

Subordinated bonds:

On March 11, 2016, the Proposal on Issue of Subordinated Bonds (Including Perpetual Subordinated Bonds) by the Company was considered and approved at the 17th meeting of the third session of the Board of the Company, and at the 2015 annual general meeting of the Company convened on May 25, 2016, pursuant to which, the Company was authorized to issue a scale of up to RMB10 billion (including) subordinated bonds (including perpetual subordinated bonds). On November 1, 2016, the Company received the Letter of No Objection on Listing and Transfer of 2016 Subordinated Bonds by 東方證券股份有限公司 (Shang Zheng Han [2016] No. 2057) issued by the SSE.

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Interim Report 2017 DFZQ

Section IX Corporate Bonds

During the Reporting Period, the Company completed issue of the 2017 first tranche subordinated bonds on April 26, 2017. The issuing size of the bonds was RMB3 billion, of which Type 1 was RMB1.5 billion, with a term of three years and coupon rate of 4.90%, and Type 2 was RMB1.5 billion, with a term of five years and coupon rate of 5.10%; the Company completed issue of the 2017 second tranche subordinated bonds on May 15, 2017. The issuing size of the bonds was RMB3 billion, of which Type 1 was RMB1.5 billion, with a term of three years and coupon rate of 5.15%, and Type 2 was RMB1.5 billion, with a term of five years and coupon rate of 5.35%.

II. CONTACT PERSON AND CONTACT METHOD OF THE CORPORATE BONDS TRUSTEE MANAGER AND CONTACT METHOD OF CREDIT RATING AGENCY

Bonds trustee manager	Name	Everbright Securities Company Limited
	Office address	No. 1508 Xinzha Road, Shanghai, the PRC
	Contact person	Zhou Ping
	Tel	86-021-22169999
Bonds trustee manager	Name	Dongguan Securities Limited (東莞證券股份有限
		公司)
	Office address	25F, Pudong Jialicheng, No. 1155, Fangdian Road,
		Shanghai, the PRC
	Contact person	Wu Kunsheng
	Tel	86-021-50155120
Credit rating agency	Name	China Chengxin Securities Ratings Co., Ltd.
	Office address	Room 968, Building 1, No. 599 Xinye Road, Qingpu
		District, Shanghai, the PRC

Other explanations:

On June 5, 2015, the Securities Association of China published the Code of Conduct for Corporate Bonds Trustee Manager, which introduced the concept of bonds trustee manager, therefore, the Company did not engage any corporate bonds trustee manager for the 2014 corporate bonds.

Everbright Securities Company Limited was the bonds trustee manager for the Company’s 2015 Corporate Bonds, Dongguan Securities Limited was the bonds trustee manager for the Company’s 2017 non-publicly issued Corporate Bonds.

III. USE OF PROCEEDS FROM CORPORATE BONDS

(I) 14 Orient Securities Bonds

On August 26, 2014, the Company issued RMB6 billion corporate bonds under private placement. Pursuant to the relevant contents in the prospectus of such bonds, the Company fully used the net proceeds (after deduction of issuing expenses) for replenishing its working capital so as to expand the business scope and scale, optimize the business structure, and improve the comprehensive competitiveness of the Company.

DFZQ Interim Report 2017

Section IX Corporate Bonds

The Company’s actual use of the proceeds was in line with the purposes and other covenants undertaken in the prospectus.

(II) 15 Orient Securities Bonds

As approved by the document (Zheng Jian Xu Ke [2015] No. 2406) issued by the CSRC, the Company publicly issued RMB12 billion corporate bonds on November 26, 2015. Pursuant to the relevant contents in the prospectus of such bonds, the Company fully used the net proceeds (after deduction of expenses related to the issuance) for replenishing its working capital so as to expand its business scale and improve its market competitiveness and risk prevention capability.

The proceeds from such bonds had been transferred to the designated proceeds account specified by the Company in the prospectus, and were used for replenishing the Company’s working capital, which was in line with the purposes and other covenants undertaken in the prospectus. Deloitte Touche Tohmatsu CPA LLP issued a capital verification report (De Shi Bao (Yan) Zi (15) No. 1759) in respect of receipt of the proceeds.

(III) 17 Orient Securities 01, 17 Orient Securities 02

On June 9, 2017, the Company non-publicly issued RMB5 billion corporate bonds. The issuing size of the “17 Orient Securities 01” was RMB4 billion with a term of three years, the issuing size of the “17 Orient Securities 02” was RMB1 billion with a term of five years. The amount (after deduction of expenses related to the issuance) transferred to the designated proceeds account was RMB4.996 billion.

The Company used the capital strictly according to the relevant laws and regulations and the usage disclosed in the prospectus.

IV. RATING OF CORPORATE BONDS

During the Reporting Period, China Chengxin Securities Ratings Co., Ltd. conducted follow-up ratings on the creditworthiness of the Company’s issued “14 Orient Securities Bonds” and “15 Orient Securities Bonds”, and issued the Follow-up Rating Report on the 2014 Corporate Bonds of 東方證券股份有限公司 (2017) (Xin Ping Wei Han Zi [2017] Gen Zong No. 073), and the Follow-up Rating Report on the 2015 Corporate Bonds of 東方證券股份有限公司 (2017) (Xin Ping Wei Han Zi [2017] Gen Zong No. 074), which maintained the AAA ratings given to the Company’s “14 Orient Securities Bonds” and “15 Orient Securities Bonds”, and also maintained the AAA ratings and a stable outlook given to the Company.

V. CREDIT ENHANCEMENT MECHANISM, REPAYMENT PLAN AND OTHER RELEVANT INFORMATION OF CORPORATE BONDS DURING THE REPORTING PERIOD

During the Reporting Period, the corporate bonds have no credit enhancement mechanism or any change on repayment plan, which was in line with the covenants undertaken in the prospectus.

Interim Report 2017 DFZQ

Section IX Corporate Bonds

VI. MEETING OF CORPORATE BONDHOLDERS

During the Reporting Period, the Company did not convene any meetings of corporate bondholders.

VII. DUTY PERFORMANCE OF CORPORATE BONDS TRUSTEE MANAGER

The issue of “15 Orient Securities Bonds” was completed on November 26, 2015. Everbright Securities Company Limited, the bonds trustee manager, conducted continuous follow-up and supervision on the fulfillment of obligations under the prospectus by the Company during the effective period of the bonds, and announced the bonds trustee management report for the last year on June 30 each year during the effective period of the bonds.

VIII. ACCOUNTING DATA AND FINANCIAL INDICATORS AS AT THE END OF THE REPORTING PERIOD AND THE END OF LAST YEAR (OR DURING THE REPORTING PERIOD AND THE SAME PERIOD OF LAST YEAR)

			Increase or decrease
	As at the end		at the end of the
	of the		Reporting Period as
	Reporting	As at the end	compared with the end
Major indicators	Period	of lastyear	of lastyear	Reason for change
Current ratio	143.97%	134.15%	increase by 9.82
			percentage points
Quick ratio	143.97%	134.15%	increase by 9.82
			percentage points
Gearing ratioNote	77.40%	76.76%	increase by 0.64
			percentage points
Loan repayment rate	100.00%	100.00%	–
			Increase or decrease
			in the Reporting Period
	The Reporting		as compared with the
	Period	Same period	same period of last
	(January-June)	of lastyear	year	Reason for change
EBITDA interest	1.84	1.53	20.37%	Mainly due to the
coverage ratio				increase in profits before
				interest and taxation
Interest repayment ratio	100.00%	100.00%	–

Note: Gearing ratio = (Total liabilities – Accounts payable to brokerage clients – Funds payable to securities issuers)/(Total assets – Accounts payable to brokerage clients – Funds payable to securities issuers)

DFZQ Interim Report 2017

Section IX Corporate Bonds

IX. OVERDUE DEBT

During the Reporting Period, there was no overdue debt.

X. INTEREST PAYMENT AND REPAYMENT OF OTHER BONDS AND DEBT FINANCING INSTRUMENT OF THE COMPANY

During the Reporting Period, the principal and interest of the Company’s other bonds and debt financing instruments were repaid on time without any defaults.

XI. BANK FACILITIES OF THE COMPANY DURING THE REPORTING PERIOD

As at the end of the Reporting Period, the Company received an aggregate banking facilities of RMB388.4 billion from 93 Banks, in which an aggregate facilities of RMB155.1 billion was from state-owned large-scale commercial banks and joint-stock banks, and an aggregate facilities of RMB233.3 billion was from city rural commercial banks. During the Reporting Period, the Company has maintained a good cooperative relationship with all kind of banks and the banking facilities has grown rapidly which enables the Company to have a strong short-term and mid-long term financing capability.

XII. PERFORMANCE OF UNDERTAKINGS OR COMMITMENTS IN BONDS PROSPECTUS

BY THE COMPANY DURING THE REPORTING PERIOD

There were no relevant undertakings or commitments in the bonds prospectus.

XIII. IMPACT OF MATERIAL EVENTS OF THE COMPANY ON OPERATIONS AND

SOLVENCY OF THE COMPANY

During the Reporting Period, there were no material events which had an impact on the operations and solvency of the Company.

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Interim Report 2017 DFZQ

Section X Documents Available for Inspection

Documents available for inspection

The full text and summary of the interim report signed by the legal representative and sealed with the corporate seal

The 2017 interim financial report signed and sealed by the legal representative, the accounting chief and person-in-charge of the accounting department (head of the accounting department)

The review report of Deloitte Touche Tohmatsu

Chairman of the Board: Pan Xinjun Date of approval by the Board: August 25, 2017

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100

DFZQ Interim Report 2017

Section XI Information Disclosures of Securities Company

I. RELEVANT INFORMATION ON MATERIAL ADMINISTRATIVE LICENSES OF THE COMPANY

No.	Issued by	Title of document	Number of document	Issuing date
1	Shanghai Bureau of	Letter of Consent of東方證券股份有限公司to Extend	Hu Zheng Jian Ji Gou Zi [2017]	January 12, 2017
	the CSRC	the Deadline for Establishment of 27 Securities	No. 21
		Branches
2	SSE	Letter of No Objection on Listing and Transfer of Non-	Shang Zheng Han [2017] No.	May 12, 2017
		public Issue of Corporate Bonds by東方證券股份有	491
		限公司
3	CSRC	Regulatory Opinion on the Non-public Issue of Shares	Ji Gou Bu Han [2017] No. 1340	May 25, 2017
		by Orient Securities
4	SSE	Letter of Issuing Listing Pre-review Opinion on the	Shang Zheng Zhai (Shen)	June 6, 2017
		Public Issue of Corporate Bonds to Qualified Investor	[2017] No. 101
		by東方證券股份有限公司
5	CSRC	Reply on Approving the Public Issue of Corporate	Zheng Jian Xu Ke [2017] No.	June 22, 2017
		Bonds to Qualified Investor by東方證券股份有限公司	974

II. RESULT OF CLASSIFICATION OF THE COMPANY BY REGULATORY AUTHORITY

In 2017, the Company was rated as a “Grade A, Category A” company.

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101

Interim Report 2017 DFZQ

Report on Review of Condensed Consolidated Financial Statements

For the six months ended 30 June, 2017

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TO THE BOARD OF DIRECTORS OF 東方證券股份有限公司

(Incorporated in the People’s Republic of China with limited liability)

INTRODUCTION

We have reviewed the condensed consolidated financial statements of 東方證券股份有限公司 (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 104 to 164, which comprise the condensed consolidated statement of financial position as at 30 June, 2017 and the related condensed consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six months ended 30 June, 2017, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of the condensed consolidated financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the International Auditing and Assurance Standards Board. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion.

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DFZQ Interim Report 2017

Report on Review of Condensed Consolidated

Financial Statements

For the six months ended 30 June, 2017

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that these condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

25 August, 2017

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103

Interim Report 2017 DFZQ

Condensed Consolidated Statements of Profit or Loss

For the six months ended 30 June, 2017

2017 RMB’000 NOTES (unaudited)	2017 RMB’000 NOTES (unaudited)	2017 RMB’000 NOTES (unaudited)
Revenue Commission and fee income 5 2,304,131 Interest income 6 1,953,134 Net investmentgains 7 3,109,642
7,366,907 Other income andgains or losses 8 334,690
Total revenue and other income 7,701,597
Depreciation and amortisation 9 (90,416) Staff costs 10 (1,821,365) Commission and fee expenses (173,547) Interest expenses 11 (2,740,412) Other operating expenses 12 (807,479) (Provision for)/reversal of impairment losses (34,542)
Total expenses (5,667,761)
Share of results of associates 148,441
Profit before income tax 2,182,277 Income tax expense 13 (373,674)
Profit for the period 1,808,603
Attributable to: Shareholders of the Company 1,755,242 Non-controllinginterests 53,361
1,808,603
Earnings per share attributable to shareholders of the Company (Expressed in RMB Yuan per share) – Basic 14 0.28

104

Condensed Consolidated Statements of Profit or Loss and Other Comprehensive Income

For the six months ended 30 June, 2017

	Six months	ended 30 June,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Profit for theperiod	1,808,603	1,356,377
Other comprehensive (expense)/income attributable to owners of the Company,
net of income tax:
Items that may be reclassified subsequently to profit or loss:
Available-for-sale financial assets
Net fair value changes during the period	(407,034)	(1,329,354)
Reclassification adjustment to profit or loss on disposal	(172,285)	(622,971)
Reclassification adjustment to profit or loss on impairment	31,899	–
Income tax impact	138,285	489,614
Share of other comprehensive (expense)/income of associates	(846)	917
Exchange differences arising on translation	(23,059)	11,697
Others	289	391
Other comprehensive expense for theperiod,net of income tax	(432,751)	(1,449,706)
Total comprehensive income/(expense) for the period	1,375,852	(93,329)
Attributable to:
Shareholders of the Company	1,322,202	(166,665)
Non-controllinginterests	53,650	73,336
	1,375,852	(93,329)

The accompanying notes presented on pages 115 to 164 form part of these condensed consolidated financial statements.

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105

Interim Report 2017 DFZQ

Condensed Consolidated Statements of Financial Position

As at 30 June, 2017

As at 30 June, 2017 RMB’000 NOTES (unaudited)	As at 31 December, 2016 RMB’000 (audited) 1,844,486 32,135 114,884 3,514,660 218,458 10,712,807 140,500 15,456,170 253,903 32,288,003 10,651,586 737,500 3,837,759 66,549,121 71,560 19,102,771 23,329,193 70,509 1,099,849 10,504,501 43,718,835 449,900 180,123,084 212,411,087
Non-current assets Property and equipment 15 1,841,270 Goodwill 16 32,135 Other intangible assets 107,478 Investments in associates 18 3,423,317 Other receivables and prepayments 20 – Available-for-sale financial assets 21 9,293,191 Held-to-maturity investments 22 37,500 Financial assets held under resale agreements 23 13,081,440 Deferred tax assets 144,736
Total non-current assets 27,961,067
Current assets Advances to customers 24 11,145,018 Account receivables 25 572,555 Other receivables and prepayments 20 3,901,964 Available-for-sale financial assets 21 60,604,745 Held-to-maturity investments 22 85,609 Financial assets held under resale agreements 23 22,035,827 Financial assets at fair value through profit or loss 26 43,028,098 Derivative financial assets 39,006 Deposits with exchanges and financial institutions 27 920,583 Clearing settlement funds 28 10,053,496 Cash and bank balances 29 31,659,256 Restricted bank deposits 449,900
Total current assets 184,496,057
Total assets 212,457,124

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106

DFZQ Interim Report 2017

Condensed Consolidated Statements of Financial Position

As at 30 June, 2017

As at 30 June, 2017 RMB’000 NOTES (unaudited)	As at 31 December, 2016 RMB’000 (audited) 480,727 5,100,000 35,651,787 1,377,921 3,591,833 237,925 24,020,769 4,942,779 7,471,177 419,177 40,678,940 123,973,035 56,150,049 88,438,052 6,215,452 27,155,720 7,111,726 40,482,898 454,927 40,937,825
Current liabilities Borrowings 31 1,321,799 Due to banks and other financial institutions 6,985,000 Account payables to brokerage clients 32 29,403,782 Accrued staff costs 1,212,448 Other account payables, other payables and accruals 33 3,879,257 Current tax liabilities 185,693 Bond payables 34 14,768,482 Short-term financing bills payables 35 4,266,042 Financial liabilities at fair value through profit or loss 36 5,118,384 Derivative financial liabilities 856,417 Financial assets sold under repurchase agreements 37 49,622,332
Total current liabilities 117,619,636
Net current assets 66,876,421
Total assets less current liabilities 94,837,488
Equity Share capital 38 6,215,452 Reserves 26,748,240 Retainedprofits 7,909,091
Equity attributable to shareholders of the Company 40,872,783 Non-controllinginterests 495,602
Total equity 41,368,385

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107

Interim Report 2017 DFZQ

Condensed Consolidated Statements of Financial Position

As at 30 June, 2017

As at 30 June, 2017 RMB’000 NOTES (unaudited)	As at 31 December, 2016 RMB’000 (audited) 859,034 5,720,000 357,851 40,563,342 47,500,227 88,438,052
Non-current liabilities Borrowings 31 437,073 Financial assets sold under repurchase agreements 37 970,000 Deferred tax liabilities 230,333 Bondpayables 34 51,831,697
Total non-current liabilities 53,469,103
Total equity and non-current liabilities 94,837,488

The condensed consolidated financial statements on pages 104 to 164 were approved for issue by the Board of Directors on 25 August, 2017 and signed on its behalf by:

Pan Xinjun

Chairman of Board

Zhang Jianhui

Chief Financial Officer

The accompanying notes presented on pages 115 to 164 form part of these condensed consolidated financial statements.

108

DFZQ Interim Report 2017

Condensed Consolidated Statements of Changes in Equity

For the six months ended 30 June, 2017

NOTE		Equity attributable to shareholders of the Company
		Reserves
	Share capital	Capital reserve Surplus reserve General reserve Investment revaluation reserve Translation reserve Retained profits Subtotal Non- controlling interests Total equity
	RMB’000	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Unaudited As at 1 January,2017

	6,215,452	18,028,781 2,685,798 5,712,873 708,065 20,203 7,111,726 40,482,898 454,927 40,937,825
Profit for the period Other comprehensive (expenses)/income for theperiod
	–	– – – – – 1755242 1755242 53361 1808603
	–	,, ,, , ,, – – – (409,981) (23,059) – (433,040) 289 (432,751)
Total comprehensive (expenses)/income for theperiod
	–	– – – (409,981) (23,059) 1,755,242 1,322,202 53,650 1,375,852
Capital injection by non-controlling shareholders Additional interests acquired from non- controlling shareholders of the subsidiary Appropriation to general reserve Dividends recognised as distribution 39
	–	– – – – – – – 980 980
	–	1 – – – – – 1 (226) (225)
	–	– – 25559 – – (25559) – – –
	–	, , – – – – – (932,318) (932,318) (13,729) (946,047)
As at 30 June, 2017
	6215452	18028782 2685798 5738432 298084 (2856) 7909091 40872783 495602 41368385
	,,	,, ,, ,, , , ,, ,, , ,,

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Interim Report 2017 DFZQ

Condensed Consolidated Statements of Changes in Equity

For the six months ended 30 June, 2017

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Equity attributable to shareholders of the Company
Reserves
Investment Non-
Share Capital Surplus General revaluation Translation Retained controlling Total
capital reserve reserve reserve reserve reserve profits Subtotal interests equity
NOTE RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
----- End of picture text -----

Unaudited
As at 1 January,2016		5,281,743	12,569,391	2,457,998	5,138,431	2,085,229	(23,276)	7,448,603	34,958,119	417,626	35,375,745
Profit for the period		–	–	–	–	–	–	1,283,432	1,283,432	72,945	1,356,377
Other comprehensive (expenses)/income
for theperiod		–	–	–	–	(1,461,794)	11,697	–	(1,450,097)	391	(1,449,706)
Total comprehensive (expenses)/income
for theperiod		–	–	–	–	(1,461,794)	11,697	1,283,432	(166,665)	73,336	(93,329)
Capital injection by non-controlling
shareholders		–	–	–	–	–	–	–	–	3,751	3,751
Appropriation to general reserve		–	–	–	13,345	–	–	(13,345)	–	–	–
Dividends recognised as distribution	39	–	–	–	–	–	–	(1,848,611)	(1,848,611)	(4,532)	(1,853,143)
Others		–	4,794	–	–	–	–	–	4,794	–	4,794
As at 30 June, 2016		5,281,743	12,574,185	2,457,998	5,151,776	623,435	(11,579)	6,870,079	32,947,637	490,181	33,437,818

The accompanying notes presented on pages 115 to 164 form part of these condensed consolidated financial statements.

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110

DFZQ Interim Report 2017

Condensed Consolidated Statements of Cash Flow

For the six months ended 30 June, 2017

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
OPERATING ACTIVITIES Profit before income tax 2,182,277	1,560,604
Adjustments for Interest expenses 2,740,412	2,564,280
Share of results of associates (148,441)	(132,770)
Depreciation and amortisation 90,416	84,362
Provision for/(reversal of) impairment losses 34,542	(1,427)
(Gains)/losses on disposal of property and equipment and other intangible assets (518)	611
Foreign exchange losses/(gains) 77,673	(43,659)
Net gains arising from disposal of associates (25,002) Net realised gains and income arising from available-for-sale financial assets (1,568,342)	– (1,893,803)
Interest income from held-to-maturity investments (5,913)	(24,404)
Net realised gains arising from loan and receivable investments and others (27,016)	(15,977)
Unrealised fair value change of financial assets at fair value through profit or loss (1,051,125)	482,949
Unrealised fair value change of financial liabilities at fair value through profit or loss 98,001	540,054
Unrealised fair value change of derivative financial assets (232,882)	(441,436)

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111

Interim Report 2017 DFZQ

Condensed Consolidated Statements of Cash Flow

For the six months ended 30 June, 2017

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Operating cash flows before movements in working capital 2,164,082	2,679,384
(Increase)/decrease in advances to customers (498,188)	4,505,002
Increase in financial assets held under resale agreements (558,326)	(5,269,819)
(Increase)/decrease in financial assets at fair value through profit or loss and derivative financial assets (18,383,395)	8,211,141
Decrease in deposits and reserve funds and deposits with exchanges 179,266	164,370
Decrease in bank balances and clearing settlement funds restricted or held on behalf of customers 6,804,189	9,724,065
Decrease/(increase) in accounts receivable, other receivables and prepayments 618,180	(67,654)
Decrease in other account payables, other payables and accruals (730,314)	(1,415,820)
Decrease in account payables to brokerage clients (6,248,005)	(6,909,741)
(Decrease)/increase in financial liabilities at fair value through profit or loss and derivatives financial liabilities (2,013,554)	1,461,062
Increase/(decrease) in financial assets sold under repurchase agreements 4,193,392	(4,638,947)
Increase/(decrease) in deposits due to banks and other financial institutions 1,885,000	(5,700,000)
Cash (used in)/generated from operations (12,587,673)	2,743,043
Income taxes paid (305,972)	(1,789,053)
Interestpaid (1,219,706)	(1,329,175)
NET CASH USED IN OPERATING ACTIVITIES (14,113,351)	(375,185)

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112 DFZQ Interim Report 2017

Condensed Consolidated Statements of Cash Flow

For the six months ended 30 June, 2017

		Six months	ended 30 June,
		2017	2016
		RMB’000	RMB’000
	NOTE	(unaudited)	(unaudited)
INVESTING ACTIVITIES
Dividends and interest received from investments		1,561,504	1,471,757
Proceeds on disposal of property and equipment		5,567	161
Disposal of available-for-sale financial assets, held-to-maturity
investments, loans and advances to customers		57,202,116	55,332,145
Capital injection in associates		(3,880)	(395,499)
Purchases of available-for-sale financial assets, held-to-maturity
investments, loans and advances to customers, and other
investments		(50,420,627)	(62,112,021)
Purchases of property and equipment and other intangible assets		(85,102)	(215,670)
Proceeds from disposal or capital reduction of associates		111,509	–
NET CASH FROM/(USED IN)INVESTING ACTIVITIES		8,371,087	(5,919,127)
FINANCING ACTIVITIES
Capital injection from non-controlling shareholders		980	3,751
Proceeds from bonds and short-term financing bills payables
issued		25,029,481	19,962,162
Repayments on bonds and short-term financing bills payables
issued		(23,690,150)	(14,504,928)
Proceeds from borrowings		463,836	42,040
Repayments on borrowings		(44,725)	(289,841)
Dividends paid		(15,443)	(1,855,143)
Interest of bonds and short-term financing bills payables paid		(1,586,894)	(1,096,925)
Interest of borrowings paid		(19,230)	(11,296)
Payments on acquisition of additional interests in a subsidiary		(225)	–
NET CASH FROM FINANCING ACTIVITIES		137,630	2,249,820

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Interim Report 2017 DFZQ

Condensed Consolidated Statements of Cash Flow

For the six months ended 30 June, 2017

		Six months	ended 30 June,
		2017	2016
		RMB’000	RMB’000
	NOTE	(unaudited)	(unaudited)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(5,604,634)	(4,044,492)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD	30	17,546,809	17,884,704
Effect of foreign exchange rate changes		(101,761)	55,260
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	30	11,840,414	13,895,472

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114

DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

1. GENERAL INFORMATION

東方證券股份有限公司, formerly known as the Orient Securities Limited Liability Company (東方證券有限責任公司), a limited liability company was established on 10 December, 1997. On 8 October, 2003, upon approval from the China Securities Regulatory Commission (“CSRC”) and the Shanghai Municipal Government, Orient Securities Limited Liability Company was converted into a joint stock limited liability company, and was renamed as 東方證券股份有限公司. On 23 March, 2015, the Company became listed on the Shanghai Stock Exchange with the stock code of 600958. On 8 July, 2016, the Company became listed on The Hong Kong Exchanges and Clearing Limited (the “Stock Exchange”) with the stock code of 03958.

The registered office of the Company is located at 22F, 23F and 25-29F, Building 2, No. 318, South Zhongshan Road, Shanghai, the People’s Republic of China (“PRC”).

The Company and its subsidiaries (the “Group”) are principally engaged in securities and futures brokerage, margin financing and securities lending, securities investment advisory, securities proprietary trading, asset management, agency sale of financial products, security underwriting and sponsorship, and other business activities approved by the CSRC.

The condensed consolidated financial statements are presented in Renminbi (“RMB”), which is also the functional currency of the Company.

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” issued by the International Accounting Standards Board (“IASB”) as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The condensed consolidated financial statements of the Group should be read in conjunction with the Group’s consolidated financial statements for the year ended 31 December, 2016.

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value.

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115

Interim Report 2017 DFZQ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (Continued)

Application of amendments to International Financial Reporting Standards (“IFRSs”)

In the current interim period, the Group has applied, for the first time, the following amendments to IFRSs issued by the IASB, which are applicable for the Group’s financial year beginning on 1 January, 2017.

Amendments to IAS 7 Disclosure initiative Amendments to IAS 12 Recognition of deferred tax assets for unrealised losses Amendments to IFRS 12 As part of the annual improvements to IFRSs 2014-2016 cycle

The application of the above amendments to IFRSs in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.

Amendments to IAS 7 will result in more disclosures on the reconciliation of liabilities arising from financing activities in the Group’s annual consolidated financial statements.

Except for the new amendments to IFRSs mentioned above, the significant accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June, 2017 are the same as those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 December, 2016.

3. KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of condensed consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies of the Group. The key sources of estimation uncertainty used in the condensed consolidated financial statements for the six months ended 30 June, 2017 are the same as those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 December, 2016.

4. SEGMENT REPORTING

Information reported to the Board of Directors, being the chief operating decision maker (hereinafter refer to as the “CODM”) of the Company, for the purposes of resource allocation and assessment of segment performance focuses on the nature of products sold and services provided by the Group, which is also consistent with the Group’s basis of organization, whereby the businesses are organized and managed separately as individual strategic business units that offers different products and serves different markets.

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116

DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

4. SEGMENT REPORTING (Continued)

Specifically, the Group’s reportable and operating segments are as follows:

(a) Securities sales and trading, which includes investment gains and investment income earned from trading of stocks, bonds, funds, derivatives and other financial products and fees earned from providing related investment research activities, generating primarily from the “Proprietary trading Business” comprising the Secure Investment Department, the Fixed Income Department and the Derivatives Department of the Company;
(b) Investment management, which primarily includes management and advisory fees earned from providing asset management, fund management and private equity investment management services to clients, as well as investment gains from private equity and alternative investments;
(c) Brokerage and securities financing, which primarily includes fees and commissions earned from providing brokerage and investment advisory services for the trading of stocks, bonds, funds, and warrants, as well as futures on behalf of the customers, and also interest earned from providing margin financing and securities lending services;
(d) Investment banking, which primarily includes commissions and fees earned from equity underwriting, debt underwriting and financial advisory services;
(e) Headquarters and others, includes head office operations and the overseas business of Hong Kong, including interest income earned and expense incurred for general working capital purpose.

Inter-segment transactions, if any, are conducted with reference to the prices charged to third parties and there was no change in the basis during the six months ended 30 June, 2017 and 2016.

Segment information is measured in accordance with the accounting policies and measurement criteria adopted by each segment when reporting to management, which are consistent with the accounting and measurement criteria in the preparation of the condensed consolidated financial statements.

Segment profit/loss represents the profit earned by/loss incurred by each segment without allocation of income tax expenses. This is the measure reported to CODM for the purposes of resource allocation and performance assessment.

Segment assets/liabilities are allocated to each segment, excluding deferred tax assets/liabilities. Inter-segment balances eliminations mainly include amount due from/to another segment arising from investing activities’ carried out by a segment for another segment.

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out by a segment for another segment.
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117

Interim Report 2017 DFZQ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

4. SEGMENT REPORTING (Continued)

The segment information provided to the CODM for the six months ended 30 June, 2017 and 2016 are as follows:

Operating segment

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Brokerage
Securities and
sales and Investment securities Investment Headquarters Segment Consolidated
trading management financing banking and others total Eliminations total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
For the six months ended
30 June, 2017
Unaudited
Segment revenue and results
Segment revenue and
net investment gains 2,374,449 838,386 2,521,746 754,962 928,690 7,418,233 (51,326) 7,366,907
Segment other income and gains 1,019 53,009 91,559 35,860 158,496 339,943 (5,253) 334,690
Segment revenue and other
income 2,375,468 891,395 2,613,305 790,822 1,087,186 7,758,176 (56,579) 7,701,597
Segment expenses (879,791) (540,853) (1,353,644) (370,889) (2,581,470) (5,726,647) 58,886 (5,667,761)
Segment results 1,495,677 350,542 1,259,661 419,933 (1,494,284) 2,031,529 2,307 2,033,836
Share of results of associates – 148,441 – – – 148,441 – 148,441
Profit/(loss) before income tax 1,495,677 498,983 1,259,661 419,933 (1,494,284) 2,179,970 2,307 2,182,277
As at 30 June, 2017
Unaudited
Segment assets and liabilities
Segment assets 80,657,050 7,962,090 81,472,684 1,563,863 53,110,405 224,766,092 (12,453,704) 212,312,388
Deferred tax assets 144,736
Group’s total assets 212,457,124
Segment liabilities 40,212,055 1,418,334 38,226,358 369,472 91,830,936 172,057,155 (1,198,749) 170,858,406
Deferred tax liabilities 230,333
Group’s total liabilities 171,088,739
For the six months ended 30
June, 2017
Unaudited
Other segment information
Amounts included in the measure
of segment profit or loss or
segment assets:
–
Depreciation and amortisation 2,792 2,088 26,327 2,915 56,294 90,416 90,416
Provision for/(reversal of)
impairment losses 32,392 (178) 328 169 2,217 34,928 (386) 34,542
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118

DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

4. SEGMENT REPORTING (Continued)

Operating segment (Continued)

	Securities sales and trading Investment management Brokerage and securities financing Investment banking Headquarters and others Segment total Eliminations Consolidated total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
	For the six months ended 30 June, 2016 Unaudited Segment revenue and results Segment revenue and net investment gains 483,679 640,236 2,844,024 770,248 897,736 5,635,923 (161,018) 5,474,905 Segment other income andgains 60 36,469 18,902 30,484 192,873 278,788 (4,245) 274,543
	Segment revenue and other income 483,739 676,705 2,862,926 800,732 1,090,609 5,914,711 (165,263) 5,749,448 Segment expenses (649,438) (231,946) (1,759,820) (315,787) (1,426,655) (4,383,646) 62,032 (4,321,614)
	Segment results (165,699) 444,759 1,103,106 484,945 (336,046) 1,531,065 (103,231) 1,427,834
	Share of results of associates – 132,770 – – – 132,770 – 132,770
	(Loss)/profit before income tax (165,699) 577,529 1,103,106 484,945 (336,046) 1,663,835 (103,231) 1,560,604
	As at 31 December, 2016 Audited Segment assets and liabilities Segment assets 66,424,700 8,051,720 91,837,945 2,194,209 60,492,144 229,000,718 (16,843,534) 212,157,184 Deferred tax assets 253,903
	Group’s total assets 212,411,087 Segment liabilities 31,003,146 1,785,895 53,344,453 1,137,589 87,146,113 174,417,196 (3,301,785) 171,115,411 Deferred tax liabilities 357,851
	Group’s total liabilities 171,473,262
	For the six months ended 30 June, 2016 Unaudited Other segment information
	Amounts included in the measure of segment profit or loss or segment assets: Depreciation and amortisation 2,160 1,296 29,489 2,374 49,043 84,362 – 84,362 (Reversal of)/provision for impairment losses (369) (408) 9 (4) (726) (1,498) 71 (1,427)

119

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

4. SEGMENT REPORTING (Continued)

Operating segment (Continued)

The Group’s non-current assets are mainly located in the PRC (country of domicile). The Group’s revenue are substantially derived from its operations in the PRC.

The Group has no single customer which contributes to 10 percent or more of the Group’s revenue for the six months ended 30 June, 2017 and the year ended 31 December, 2016.

5. COMMISSION AND FEE INCOME

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Commission on securities dealing, broking and handling fee income 724,573	931,493
Underwriting, sponsors and financial advisory fee income 663,996	703,787
Commission on futures and options contracts dealing, broking and handling fee income 105,505	108,412
Asset management fee income 644,707	415,555
Consultancy fee income 156,066	102,989
Others 9,284	7,754
2,304,131	2,269,990

6. INTEREST INCOME

	Six months	ended 30 June,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Advances to customers and securities lending	397,032	441,025
Financial assets held under resale agreements	1,087,145	1,101,932
Deposits with exchanges and financial institutions and bank balances	436,383	547,685
Others	32,574	112,013
	1,953,134	2,202,655
Interim Report 2017

120

DFZQ Interim Report 2017

For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. NET INVESTMENT GAINS

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Net realised gains from disposal of available-for-sale financial assets 172,285	622,971
Dividend income and interest income from available-for-sale financial assets 1,396,057	1,270,832
Net realised losses from disposal of financial assets at fair value through profit or loss (422,017)	(977,562)
Dividend income and interest income from financial assets at fair value through profit or loss 767,841	633,341
Net realised gains/(losses) arising from financial liabilities at fair value through profit or loss 73,354	(7,182)
Interest income from held-to-maturity financial assets 5,913	24,404
Net realised gains from disposal of associates 25,002 Net realised (losses)/gains arising from derivative financial instruments (121,815)	– 1,046
Unrealised fair value change of financial assets at fair value through profit or loss 1,051,125	(482,949)
Unrealised fair value change of financial liabilities at fair value through profit or loss (98,001)	(540,054)
Unrealised fair value change of derivative financial instruments 232,882	441,436
Others 27,016	15,977
3,109,642	1,002,260

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Interim Report 2017 DFZQ

For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. OTHER INCOME AND GAINS OR LOSSES

	Six months	ended 30 June,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Foreign exchange (losses)/gains	(77,673)	43,659
Rental income	8,022	13,560
Government grants_(Note)_	306,574	215,815
Gains/(losses) on disposals of property and equipment	518	(611)
Bulk commoditytradingincome and others	97,249	2,120
	334,690	274,543

Note: The government grants were received unconditionally from the local governments to support operations on certain purposes.

9. DEPRECIATION AND AMORTISATION

			Six months	ended 30 June,
			2017	2016
			RMB’000	RMB’000
			(unaudited)	(unaudited)
Depreciation	of	property and equipment	62,486	62,012
Amortisation	of	other intangible assets	27,930	22,350
			90,416	84,362

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122

DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

10. STAFF COSTS

Staff costs mainly include salaries, bonus and allowances amounting to RMB1,576 million (unaudited) and RMB677 million (unaudited) for the period ended 30 June, 2017 and 2016 respectively.

11. INTEREST EXPENSES

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Interest on liabilities wholly repayable within five years: Account payables to brokerage clients 40,174	48,671
Financial assets sold under repurchase agreements 906,314	876,448
Borrowings 25,479	11,127
Due to banks and other financial institutions 98,958	100,071
Short-term financing bills payables 80,650	98,144
Bond payables 1,544,331	1,392,092
Others 44,506	37,727
2,740,412	2,564,280

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123

Interim Report 2017 DFZQ

For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. OTHER OPERATING EXPENSES

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Advisory expenses 70,129	33,523
Auditor’s remuneration 4,490	3,485
Business travel expenses 42,449	36,418
Communication expenses 34,750	25,892
Electronic equipment operating expenses 61,601	38,136
Entertainment expenses 35,133	28,142
Administrative expenses 77,256	76,791
Operating lease rentals in respect of rented premises 134,782	118,914
Products distribution expenses 167,928	71,569
Securities and futures investor protection funds 18,637	16,175
Stock exchange management fees 16,051	16,258
Sundry expenses 22,244	16,079
Tax and surcharges_(Note)_ 28,501	158,367
Donation 9,157 Bulk commoditytradingand others 84,371	2 576
807,479	640,327

Note: Pursuant to the “Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax” (Cai Shui [2016] No.36) issued by the Ministry of Finance and the State Administration of Taxation in March 2016, the Group has applied value-added tax instead of business tax since 1 May, 2016.

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124 DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

13. INCOME TAX EXPENSE

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Current tax: PRC Enterprise Income Tax 224,171	355,724
HongKongProfits Tax 1,377	2,232
225,548	357,956
Adjustments in respect of current income tax in relation to prior years: PRC Enterprise Income Tax 28,192	(64,100)
Deferred tax 119,934	(89,629)
373,674	204,227

Under the Enterprise Income Tax of the PRC (the “EIT Law”) and the Implementation Regulation of the EIT Law, the tax rate of the Company and the Group’s PRC subsidiaries is 25%.

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the period.

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125

Interim Report 2017 DFZQ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

13. INCOME TAX EXPENSE (Continued)

The income tax expense for the period can be reconciled to the profit before income tax as follows:

Six months	ended 30 June,
2017	2016
RMB’000	RMB’000
(unaudited)	(unaudited)
Profit before income tax 2,182,277	1,560,604
Tax at the statutory tax rate of 25% 545,569	390,151
Tax effect of share of results of associates (37,110)	(33,193)
Adjustments for prior years 28,192	(64,100)
Tax effect of expenses not deductible for tax purpose 3,280	5,365
Tax effect of income not taxable for tax purpose (181,104)	(104,704)
Tax effect of tax losses not recognised 18,849	20,360
Utilisation of tax losses previously not recognised (3,293)	(8,502)
Effect of different tax rates of subsidiaries operatingin otherjurisdictions (709)	(1,150)
Income tax expense for the period 373,674	204,227

14. EARNINGS PER SHARE

The calculation of basic earnings per share attributable to shareholders of the Company is as follows:

Six months ended 30 June, 2017 2016 RMB’000 RMB’000 (unaudited) (unaudited)	Six months ended 30 June, 2017 2016 RMB’000 RMB’000 (unaudited) (unaudited)
Earnings for the purpose of basic earnings per share: Profit for theperiod attributable to shareholders of the Company 1,755,242	1,283,432
Number of shares: Weighted average number of ordinary shares in issue (in thousand) 6,215,452	5,281,743

Basic earnings per share (RMB Yuan) 0.28	0.24

For the six months ended 30 June, 2017 and 2016, there were no potential ordinary shares in issue.

126

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

15. PROPERTY AND EQUIPMENT

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----- Start of picture text -----

Electronic
Leasehold and
land and communication Motor Office Leasehold Construction
buildings equipment vehicles equipment improvements in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Unaudited
COST
As at January 1, 2017 322,276 572,521 33,098 82,787 308,068 1,345,009 2,663,759
Additions – 23,774 962 1,019 13,685 25,101 64,541
– –
Disposals (4,938) (12,431) (788) (1,167) (19,324)
Transfer during the period – 15,439 563 1,768 5,800 (23,570) –
Exchange difference – (309) (19) (25) (86) (17) (456)
As at 30 June, 2017 317,338 598,994 33,816 84,382 327,467 1,346,523 2,708,520
ACCUMULATED DEPRECIATION
–
As at 1 January, 2017 62,096 432,236 21,280 57,858 245,803 819,273
–
Charge for the period 5,187 29,423 1,362 4,611 21,903 62,486
– –
Eliminated on disposals (717) (11,798) (678) (1,082) (14,275)
Exchange difference – (192) (1) (19) (22) – (234)
As at 30 June, 2017 66,566 449,669 21,963 61,368 267,684 – 867,250
CARRYING VALUES
As at 30 June, 2017 250,772 149,325 11,853 23,014 59,783 1,346,523 1,841,270
Audited
COST
As at 1 January, 2016 322,276 516,047 30,010 76,355 281,616 1,220,136 2,446,440
Additions – 47,702 5,118 6,818 37,155 155,889 252,682
– –
Disposals (20,071) (2,057) (3,213) (10,930) (36,271)
– – – –
Transfer during the year 28,239 2,777 (31,016)
Exchange difference – 604 27 50 227 – 908
As at 31 December, 2016 322,276 572,521 33,098 82,787 308,068 1,345,009 2,663,759
ACCUMULATED DEPRECIATION
–
As at 1 January, 2016 51,693 398,611 20,332 50,537 207,112 728,285
–
Charge for the year 10,403 52,501 2,933 9,921 49,233 124,991
– –
Eliminated on disposals (19,209) (1,986) (2,638) (10,656) (34,489)
Exchange difference – 333 1 38 114 – 486
As at 31 December, 2016 62,096 432,236 21,280 57,858 245,803 – 819,273
CARRYING VALUES
As at 31 December, 2016 260,180 140,285 11,818 24,929 62,265 1,345,009 1,844,486
Interim Report 2017 DFZQ
----- End of picture text -----

127

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

16. GOODWILL

GOODWILL
	As at As at 30 June, 31 December, 2017 2016 RMB’000 RMB’000 (unaudited) (audited)
Cost and carrying value
Unit A – securities brokerage branches	18,948 18,948
Unit B – Shanghai Orient Securities Futures Co.,Ltd	13,187 13,187
	32,135 32,135

17. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

The Group has consolidated certain structured entities including asset management products, where the Group involves as manager and also as investor. The Group assesses whether the combination of investments it held together with its remuneration creates exposure to variability of returns from the activities of the asset management products that is of such significance that it indicates that the Group is a principal.

The financial impact of these asset management products on the Group’s financial position as at 30 June, 2017 and 31 December, 2016, and the results and cash flows for the six months ended 30 June, 2017 and 2016, though consolidated, are not significant and therefore are not disclosed separately.

The Group’s interests in all consolidated asset management products amounted to fair value of RMB2,224 million (unaudited) and RMB7,114 million (audited) at 30 June, 2017 and 31 December, 2016, respectively. It contains the interests in the subordinated tranche of those structured products held by the Group. The Group provides credit enhancement to the priority tranche investors by holding such subordinated tranche interests. As at 30 June, 2017 and 31 December, 2016, the fair value of the Group’s interests in the subordinated tranche of those structured products are RMB66 million (unaudited) and RMB60 million (audited), respectively.

Interests held by other interest holders are presented as change in net investment gains in the condensed consolidated statement of profit or loss and included in financial liabilities designated at fair value through profit or loss in the condensed consolidated statement of financial position.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

18. INVESTMENTS IN ASSOCIATES

	As at As at 30 June, 31 December, 2017 2016 RMB’000 RMB’000 (unaudited) (audited)
Cost of unlisted investments in associates	1,914,834 2,011,102
Share of post-acquisition profits and other comprehensive income, net of
dividends received	1,508,483 1,503,558
	3,423,317 3,514,660

At the end of Reporting Period, the Group has the following associates:

Equity interest held by

	Equity interest held by	Equity interest held by
S S	the Group Place and date of As at 30 June, As at 31 December, Name of associates establishment 2017 2016 Principal activities (unaudited) (audited)
	匯添富基金管理股份有限公司 China Universal Asset Management Company Limited (“China Universal”) PRC 3 February, 2005 35.41% 上海誠毅投資管理有限公司 hanghai ICY Capital Co., Ltd. PRC 7 April, 2010 45.00% 上海誠毅新能源創業投資有限公司 hanghai ICY New Energy Venture Capital Investment Co., Ltd. PRC 12 July, 2011 27.73% 上海騰希投資合夥企業(有限合夥) PRC 22.50%*	35.41% Fund management 45.00% Equity investment 27.73% Investment management 22.50% Investment
	hanghai Tengxi Investment LLP. * 6 May, 2014	management

129

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

18. INVESTMENTS IN ASSOCIATES (Continued)

			Equity interest held by	Equity interest held by	Equity interest held by
			the Group
			As at		As at
		Place and date of	30 June,	31 December,
Name of associates		establishment	2017		2016	Principal activities
			(unaudited)		(audited)
上海朱雀甲午投資中心(有限合夥)		PRC	–		23.12%	Investment
Shanghai Zhuque	Jiawu Investment	17 January, 2015				management
Center LLP. *
北京東方智雲股權投資中心(有限合夥)		PRC	42.19%		42.19%	Equity investment
Beijing Oriental Zhiyun Equity		20 August, 2015
Investment Center LLP. *
東方嘉實(上海)投資管理合夥企業		PRC	26.74%		26.74%	Investment
(有限合夥)		15 April, 2015				management
Oriental Jiashi (Shanghai)
Investment Management LLP.*
上海東證遠譽投資中心(有限合夥)		PRC	33.33%		33.33%	Investment
Shanghai Oriental Yuanyu		25 August, 2015				management
Investment Center LLP. *
上海東證今緣股權投資基金合夥企業		PRC	30.00%		30.00%	Equity investment
(有限合夥)		16 October, 2015
Shanghai Oriental Jinyuan Equity
Investment LLP. *
東證騰駿(上海)投資合夥企業(有限合夥)		PRC	38.69%		49.00%	Investment
Oriental Tengjun (Shanghai)		23 November, 2015				management
Investment LLP. *
上海君煜投資中心(有限合夥)		PRC	45.45%		45.45%	Investment
Shanghai Junyu Investment Center		16 December, 2015				management
LLP. *
海寧春秋投資合夥企業(有限合夥)		PRC	35.00%		35.00%	Equity investment
Haining Chunqiu Investment		4 February, 2016
Partnership LLP.*
Interim Report 2017

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

18. INVESTMENTS IN ASSOCIATES (Continued)

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----- Start of picture text -----

||||||
|---|---|---|---|---|
|Equity interest held by|
|the Group|
|As at|As at|
|Place and date of|30 June,|31 December,|
|Name of associates|establishment|2017|2016|Principal activities|
|(unaudited)|(audited)|
|上海東證睿芃投資中心|PRC|–|39.28%|Investment|
|(有限合夥)|3 December, 2015|management|
|Shanghai Oriental Ruipeng|
|Investment Center LLP.|
|上海東松投資合夥企業(有限合夥)|PRC|33.24%|33.24%|Investment|
|Shanghai Dongsong Investment|23 May, 2014|management|
|Partnership LLP.|
|上海東證春醫投資中心(有限合夥)|PRC|49.26%|49.26%|Investment|
|Shanghai Oriental Chunyi|3 November, 2015|management|
|Investment Center LLP.|
|東證睿波(上海)投資中心(有限合夥)|PRC|35.69%|35.69%|Investment|
|Oriental Ruibo (Shanghai)|24 June, 2015|management|
|Investment Center LLP.|
|海寧東證藍海並購投資合夥企業|PRC|25.85%|25.70%|Investment|
|(有限合夥)|13 July, 2016|management|
|Haining Orient Securities Lanhai|
|Merge Investment Partnership|
|LLP.|
|Dragonite International Limited|Cayman Islands|29.63%|29.63%|Securities|
|6 June, 2015|investment|
|杭州東證誠泰投資管理有限公司|PRC|36.00%|N/A|Investment|
|Hangzhou Orient Chengtai Capital|27 March, 2017|management|
|Co., Ltd.|

----- End of picture text -----

English translated names are for identification purpose only.

** Dragonite International Limited announced that the Company would be renamed as OCI International Holdings Limited on 4 July, 2017.

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For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18. INVESTMENTS IN ASSOCIATES (Continued)

The summarized consolidated financial information of China Universal prepared in accordance with IFRS, which is an individually significant associate to the Group that is accounted for using equity method, is set out below:

China Universal

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||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|Total assets|5,638,777|6,951,263|
|Total liabilities|1,243,215|2,580,145|
|Net assets|4,395,562|4,371,118|
|Six months ended 30 June,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(unaudited)|
|Total revenue|1,310,841|1,256,831|
|Profit for the period|409,624|328,995|
|Other comprehensive income|17,703|2,294|
|Total comprehensive income|427,327|331,289|

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Reconciliation of the above consolidated financial information to the carrying amount of the interest in above associate recognised in the financial statements:

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----- Start of picture text -----

||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|Equity attributable to equity holders of the associate|4,395,562|4,371,118|
|Proportion of equity interests held by the Group|35.41%|35.41%|
|Carrying amount|1,556,469|1,547,813|

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132

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

19. INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES

The Group served as the investment manager of structured entities (including collective asset management schemes and investment funds), therefore had power over them during the periods. Except for the structured entities the Group has consolidated as disclosed in Note 17, the Group also has interests in unconsolidated structured entities with remuneration. In the opinion of the directors of the Company, the variable returns the Group exposed to over these collective asset management schemes and investment funds are not significant. The Group therefore did not consolidate these structured entities.

The total assets of unconsolidated funds and asset management schemes managed by the Group amounted to RMB178,063 million (unaudited) and RMB156,880 million (audited) as at 30 June, 2017 and 31 December, 2016, respectively. The Group classified the investments in unconsolidated funds and asset management schemes as available-for-sale financial investments and financial assets at fair value through profit or loss as appropriate. As at 30 June, 2017 and 31 December, 2016, the carrying amounts of the Group’s interests in unconsolidated management schemes are RMB381 million (unaudited) and RMB1,180 million (audited), respectively, which approximates the maximum risk exposure of the Group, and the assets management fee income for the six months ended 30 June, 2017 and 2016, are RMB645 million (unaudited) and RMB416 million (unaudited), respectively.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

20. OTHER RECEIVABLES AND PREPAYMENTS

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----- Start of picture text -----

||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|Non-current|
|Loans and advances to customers|–|219,556|
|Less: allowance for doubtful debts|–|(1,098)|
|–|
|218,458|
|The movements in the allowance for doubtful debts are set out below:|
|–|
|At beginning of the year|1,098|
|–|
|Charge for during the period/year|1,098|
|Transfer out during the period/year|(1,098)|–|
|–|
|At end of the period/year|1,098|
|Current|
|Other receivables|251,595|347,377|
|Interest receivable|1,839,092|1,746,275|
|Dividends receivable|–|76|
|Loans and advances to customers|1,762,467|1,729,494|
|Prepayments|107,866|75,591|
|Less: allowance for doubtful debts|(59,056)|(61,054)|
|3,901,964|3,837,759|
|The movements in the allowance for doubtful debts are set out below:|
|At beginning of the year|61,054|66,176|
|–|
|Transfer in during the period/year|1,098|
|Reversal of during the period/year|(3,096)|(5,122)|
|At end of the period/year|59,056|61,054|

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134 DFZQ Interim Report 2017

For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

21. AVAILABLE-FOR-SALE FINANCIAL ASSETS

AVAILABLE-FOR-SALE FINANCIAL ASSETS
As at 30 June, 2017 RMB’000 (unaudited)	As at 31 December, 2016 RMB’000 (audited) 43,176 66,414 677,756 7,954,615 1,973,848 (3,002) 10,712,807 667,943 10,044,864 10,712,807 5,665,534 1,485,486 53,361,897 6,036,204 66,549,121 35,978,793 30,570,328 66,549,121
Non-current Measured at fair value: – Equity securities 37,016 – Funds 32,695 – Debt securities 517,647 – Other investments 6,315,857 Measured at cost: – Equity securities 2,389,976 Less:provision for impairment losses –
9,293,191
Analysed as – Listed_(Note)_ 513,723 – Unlisted 8,779,468
9,293,191
Current Measured at fair value: – Equity securities 2,701,163 – Funds 1,495,224 – Debt securities 51,278,332 – Other investments 5,130,026
60,604,745
Analysed as – Listed_(Note)_ 37,733,523 – Unlisted 22,871,222
60,604,745	66,549,121

Note: Securities and funds traded on the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the Stock Exchange are included in the “Listed” category.

135

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For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

22. HELD-TO-MATURITY INVESTMENTS

HELD-TO-MATURITY INVESTMENTS
	As at	As at
	30 June, 31 December,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(audited)
Non-current
– Debt securities_(Note a)_	37,500	140,500
Analysed as
– Listed_(Note c)_	37,500	70,500
– Unlisted_(Note d)_	–	70,000
	37,500	140,500
Current
– Debt securities_(Note b)_	85,609	71,560
Analysed as
– Listed_(Note c)_	45,609	51,560
– Unlisted_(Note d)_	40,000	20,000
	85,609	71,560

Note a:

As at 30 June, 2017 and 31 December, 2016, the held-to-maturity bond investments bore interest at 7.23% and from 6.86% to 7.48%, respectively per annum and would not be redeemed within one year.

Note b:

As at 30 June, 2017 and 31 December, 2016, the held-to-maturity bond investments bore interest ranged from 5.68% to 7.48% and from 5.68% to 7.48%, respectively per annum and would be redeemed within one year.

Note c:

As at 30 June, 2017 and 31 December, 2016, the listed debt securities were listed on Shanghai Stock Exchange.

Note d:

As at 30 June, 2017 and 31 December, 2016, the unlisted debt securities were traded on inter-bank market.

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For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

23. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS

FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS
As at 30 June, 2017 RMB’000 (unaudited)	As at 31 December, 2016 RMB’000 (audited)
Non-current Analysed by collateral type: Stock 13,081,440	15,456,170
Analysed by market: Stock exchange 13,081,440	15,456,170
Current Analysed by collateral type: Stock 20,464,195 Bond 1,559,350 Others 12,282	17,447,312 1,625,459 30,000
22,035,827	19,102,771
Analysed by market: Stock exchange 21,512,495 Inter-bank market 511,050 Over the counter 12,282	18,473,271 599,500 30,000
22,035,827	19,102,771

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

24. ADVANCES TO CUSTOMERS

ADVANCES TO CUSTOMERS
	As at As at 30 June, 31 December, 2017 2016 RMB’000 RMB’000 (unaudited) (audited)
Loans to margin clients	10,830,060 10,291,012
Other advances to customers	353,941 394,801
Less: allowance for doubtful debts	(38,983) (34,227)
	11,145,018 10,651,586

The credit facility limits to margin clients are determined by the discounted market value of the collateral securities accepted by the Group.

Loans to margin clients which are secured by the underlying pledged securities and cash collateral as disclosed in Note 32 are interest bearing. The Group maintains a list of approved stocks for margin lending at a specified loan-to-collateral ratio. Any excess in the lending ratio will trigger a margin call when the customers have to make up the difference.

Advances to customers were secured by the customers’ securities and cash collateral, which were pledged to the Group as collateral. The undiscounted market values of all the collaterals held in all clients’ margin accounts in respect of margin financing business amounted to approximately RMB38,337 million (unaudited) and RMB36,806 million (audited) as at 30 June, 2017 and 31 December, 2016, respectively.

The directors of the Company are of the opinion that the ageing analysis does not give additional value in view of the nature of the securities margin financing business. As a result, no ageing analysis is disclosed.

The Group evaluates the collectability of the loans to margin clients based on management’s assessment on changes in credit quality, collateral and the past collection history of each margin client. As at 30 June, 2017 and 31 December, 2016, provision for impairment losses were made RMB39 million (unaudited) and RMB34 million (audited) on the loans and margin clients of the Group.

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138 DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

25. ACCOUNT RECEIVABLES

ACCOUNT RECEIVABLES
As at 30 June, 2017 RMB’000 (unaudited)	As at 31 December, 2016 RMB’000 (audited) 248,104 130,370 341,348 20,852 (3,174) 737,500 2,488 686 3,174 389,121 326,543 21,738 98 737,500
Account receivables from/related to: Clearing house 168,484 Brokers 120,460 Asset management fee and trading seats commission 246,064 Advisory and investment banking commission 40,416 ess: allowance for doubtful debts (2,869)
572,555
Movements in the allowance for doubtful debts are as follows: At beginning of the period/year 3,174 Reversal of)/charge for theperiod/year (305)
At end of the period/year 2,869
Ageing analysis of account receivables from the trade date is as follows: – Within 3 months 547,393 – Between 3 months and 1 year 21,508 – Between 1 and 2 years 3,568 – Between 2 and 3years 86
572,555

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

26. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
As at 30 June, 2017 RMB’000 (unaudited)	As at 31 December, 2016 RMB’000 (audited)
Held for trading Debt securities 22,589,967 Equity securities 8,710,986 Funds 5,407,934 Other investments 1,956,069 Designated at fair value through profit or loss Equity securities listed on National Equities Exchange and Quotations 4,239,737 Restricted shares 123,405	7,890,386 1,966,735 6,244,872 2,963,498 4,076,625 187,077
43,028,098	23,329,193
Analysed as: – Listed_(Note)_ 18,238,456 – Unlisted 24,789,642	7,230,758 16,098,435
43,028,098	23,329,193

Note: Securities and funds traded on the Shanghai Stock Exchange, the Shenzhen Stock Exchange, the Stock Exchange and other stock exchanges are included in the “Listed” category.

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140 DFZQ Interim Report 2017

For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

27. DEPOSITS WITH EXCHANGES AND FINANCIAL INSTITUTIONS

	As at As at 30 June, 31 December, 2017 2016 RMB’000 RMB’000 (unaudited) (audited)
Deposits with stock exchanges:
Shanghai Stock Exchange	70,337 73,886
Shenzhen Stock Exchange	47,360 48,594
Hong Kong Exchanges	3,056 2,365
Others	4,270 2,761
Deposits with futures and commodity exchanges:
Shanghai Futures Exchange	500 500
Dalian Commodity Exchange	500 500
Zhengzhou Commodity Exchange	400 400
China Financial Futures Exchange	131,828 161,345
Shanghai Gold Exchange	4,905 7,915
Guarantee fund paid to Shanghai Stock Exchange	10,277 9,313
Guarantee fund paid to Shenzhen Stock Exchange	10,518 11,847
Deposits with China Securities Finance Corporation Limited	321,239 527,390
Deposits with Shanghai Clearing House	98,062 96,877
Deposits with other financial institutions
Equity return swap	12,400 12,400
Cross currency swap	200,221 143,202
Bulk steel tradingcenter	4,710 554
	920,583 1,099,849

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141

Interim Report 2017 DFZQ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

28. CLEARING SETTLEMENT FUNDS

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----- Start of picture text -----

||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|Clearing settlement funds held with clearing houses for:|
|House accounts|1,976,539|3,037,512|
|Clients|8,076,957|7,466,989|
|10,053,496|10,504,501|

----- End of picture text -----

29. CASH AND BANK BALANCES

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----- Start of picture text -----

||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|House accounts|10,321,835|14,967,197|
|Cash held on behalf of clients|21,787,321|29,201,538|
|32,109,156|44,168,735|
|Less: restricted bank deposits|(449,900)|(449,900)|
|31,659,256|43,718,835|

----- End of picture text -----

Cash and bank balances comprise of cash on hand and demand deposits which bear interest at the prevailing market rates.

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DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

30. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise of the following:

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||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|Cash and bank balances|10,321,835|14,967,197|
|Clearing settlement funds|1,976,539|3,037,512|
|Less: clearing settlement funds of|
|Shanghai Orient Futures Co., Ltd.|(8,060)|(8,000)|
|restricted bank deposits|(449,900)|(449,900)|
|11,840,414|17,546,809|

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31. BORROWINGS

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As at As at
30 June, 31 December,
2017 2016
RMB’000 RMB’000
(unaudited) (audited)
Current
Unsecured short-term borrowings (Note a) 873,890 480,727
–
Pledged short-term borrowings (Note a) 48,675
Secured long-term borrowings due within one year (Note b) 399,234 –
1,321,799 480,727
Non-current
Pledged long-term borrowings (Note c) 437,073 447,564
Secured long-term borrowings repayable between one to two years
(Note b) – 411,470
437,073 859,034
Interim Report 2017 DFZQ
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143

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

31. BORROWINGS (Continued)

Note a:

Short-term bank borrowings are repayable within one year.

As at 30 June, 2017 and 31 December, 2016, the unsecured bank borrowing, amounting to USD50 million (approximately RMB338 million and RMB347 million respectively) and bearing the rate of 3.7% is repayable within one year.

As at 30 June, 2017, the unsecured bank borrowing, amounting to HKD270 million (approximately RMB234 million) and bearing a floating rate of 3 month HIBOR plus 1.7% per annum is repayable within one year.

As at 30 June, 2017, the unsecured bank borrowing, amounting to USD44.5 million (approximately RMB331 million) and bearing the rate of 1.8% per annum is repayable within one year.

As at 30 June, 2017, certain short-term borrowings were pledged by the financial assets of Orient Sun Rise Value Fund Segregated Portfolio, of which the carrying amount is RMB171 million. The borrowings bearing the rate from 1.53% to 2.47% are repayable within one year.

As at 30 June, 2017, the short-term borrowing was pledged by the interests in JSS Short Term Bond Global Opportunities, of which the carrying amount is RMB34 million. The borrowing bearing the rate of 1.5% is repayable within one year.

As at 31 December, 2016, the unsecured bank borrowing, amounting to HKD100 million (approximately RMB89 million) and bearing a floating rate of 3 month HIBOR plus 2.5% per annum is repayable within one year.

As at 31 December, 2016, the unsecured bank borrowing, amounting to HKD50 million (approximately RMB45 million) and bearing a floating rate of 1 week HIBOR plus 2% per annum is repayable within one year.

Note b:

As at 30 June, 2017 and 31 December, 2016, the long-term loan of the Group was secured by all participating shares of Orient Sun Rise China Bond Fund Segregated Portfolio, a structured entity of the Group. The carrying amount of such structured entity is RMB590 million (unaudited) and RMB517 million (audited) as at 30 June, 2017 and 31 December, 2016, respectively. The borrowing is denominated in Hong Kong dollar, bearing a floating rate of 3 month HIBOR plus 1.8% per annum.

Note c:

As at 30 June, 2017 and 31 December 2016, the long-term borrowing was pledged by a deposit of which the carrying amount is RMB449.9 million. The borrowing amounting to USD64.5 million (approximately RMB437 million and RMB448 million respectively) and bearing a floating rate of 12 month LIBOR plus 0.75% per annum is repayable on 17 November 2018.

32. ACCOUNT PAYABLES TO BROKERAGE CLIENTS

The majority of the accounts payable balances are repayable on demand except where certain balances represent margin deposits and cash collateral received from clients for their trading activities under the normal course of business. Only the excess amounts over the required margin deposits and cash collateral stipulated are repayable on demand.

No ageing analysis is disclosed as in the opinion of the directors of the Company, the ageing analysis does not give additional value in view of the nature of these businesses.

Account payables to brokerage clients mainly include money held on behalf of clients in the banks and clearing houses by the Group, and are interest-bearing at the prevailing market interest rate.

As at 30 June, 2017 and 31 December, 2016, included in the Group’s accounts payable to brokerage clients were approximately RMB1,268 million (unaudited) and RMB1,718 million (audited), respectively, of margin deposits and cash collateral received from clients for margin financing and securities lending arrangement.

144

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

33. OTHER ACCOUNT PAYABLES, OTHER PAYABLES AND ACCRUALS

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||||
|---|---|---|
|As at|As at|
|30 June,|31 December,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(audited)|
|Other account payables|
|Payables for underwriting fees and products distribution fees|121,495|163,592|
|Settlement payables|159,037|50,775|
|Other payables and accruals|
|Business tax and other taxes|22,171|173,903|
|Interest payable|1,475,274|1,553,613|
|Payables for securities and futures investor protection fund|20,125|19,698|
|Futures risk reserve|52,526|47,249|
|Dividends payable|930,684|80|
|Advance receipts|16,186|6,517|
|–|
|Acting underwriting securities|587,550|
|Performance bond|339,654|358,363|
|Others|742,105|630,493|
|3,879,257|3,591,833|

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34. BOND PAYABLES

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As at As at
30 June, 31 December,
2017 2016
RMB’000 RMB’000
(unaudited) (audited)
Current
Corporate bonds (Note a) 3,999,961 12,999,877
Subordinated bonds (Note a) 4,199,848 3,599,645
Income certificates (Note b) 3,708,217 5,424,000
Offshore bonds (Note a) 2,860,456 1,997,247
14,768,482 24,020,769
Non-Current
Corporate bonds (Note a) 22,999,746 17,999,730
Subordinated bonds (Note a) 17,399,645 11,999,653
Income certificates (Note b) 10,420,000 8,148,217
Offshore bonds (Note a) 1,012,306 2,415,742
51,831,697 40,563,342
Interim Report 2017 DFZQ
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145

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

34. BOND PAYABLES (Continued)

BOND PAYABLES(Continue	d)
Note a:
Name		Issue amount Value date	Maturity date	Coupon rate
13 Orient Subordinated Bond(1)	RMB	3,600,000,000 15/11/2013	15/11/2017	6.70%
14 Corporate Bond(2)	RMB	6,000,000,000 26/08/2014	26/08/2019	6.00%
14 Orient Subordinated Bond(3)	RMB	1,400,000,000 17/11/2014	17/11/2018	5.50%
14 Offshore RMB Bond(4)	RMB	900,000,000 26/11/2014	26/11/2017	6.50%
15-1 Offshore USD Bond(5)	USD	200,000,000 08/05/2015	08/05/2018	4.20%
15 Orient Subordinated Bond(6)	RMB	6,000,000,000 29/05/2015	29/05/2020	5.60%
15 Orient Future Subordinated
Bond(7)	RMB	600,000,000 18/06/2015	17/06/2018	6.82%
15-1 Offshore RMB Bond(8)	RMB	620,000,000 05/08/2015	26/11/2017	6.50%
15-2 Offshore USD Bond(9)	USD	150,000,000 25/08/2015	25/08/2018	4.09%
15 Corporate Bond(10)	RMB	12,000,000,000 26/11/2015	26/11/2020	3.90%
16 Orient Subordinated Bond(11)	RMB	4,000,000,000 14/11/2016	14/11/2021	3.45%
16-2 Orient Corporate Bond(12)	RMB	4,000,000,000 16/12/2016	16/12/2017	4.00%
17-1 Orient Subordinated Bond(13)	RMB	1,500,000,000 26/04/2017	26/04/2020	4.90%
17-2 Orient Subordinated Bond(14)	RMB	1,500,000,000 26/04/2017	26/04/2022	5.10%
17-3 Orient Subordinated Bond(15)	RMB	1,500,000,000 15/05/2017	15/05/2020	5.15%
17-4 Orient Subordinated Bond(16)	RMB	1,500,000,000 15/05/2017	15/05/2022	5.35%
17-1 Corporate Bond(17)	RMB	4,000,000,000 09/06/2017	09/06/2020	5.30%
17-2 Corporate Bond(18)	RMB	1,000,000,000 09/06/2017	09/06/2022	5.50%

(1) As approved by the CSRC [2013]1318, the Company issued a 4-year subordinated bond with par value no more than RMB3.6 billion on 15 November, 2013. The bond bears a fixed annual interest rate of 6.70% and the interest is paid annually.
(2) As approved by the CSRC [2014]816, the Company issued a corporate bond with par value of RMB6 billion on 26 August, 2014. The bond bears an interest rate of 6.00% with a maturity period of 5 years and the interest is paid annually.
(3) As approved by the CSRC, the Company issued 14 Orient Subordinated Bond with par value of RMB1.4 billion on 17 November, 2014. The bond bears an interest rate of 5.50% with a maturity period of 4 years and the interest is paid annually.
(4) Orient Hongsheng Limited, the Company’s Hong Kong subsidiary, issued a 3-year Offshore RMB Bond with par value of RMB900 million on 26 November, 2014. The Company entered into a keepwell deed for bond. The Offshore RMB Bond was guaranteed by Orient Finance Holdings (Hong Kong) Limited. The bond bears a fixed annual interest rate of 6.50% and the interest is paid semi-annually.
(5) Orient Zhihui Limited, the Company’s Hong Kong subsidiary, issued a 3-year Offshore USD Bond with par value of USD200 million on 8 May, 2015. The Company entered into a keepwell deed for bond. The Offshore USD Bond was guaranteed by Orient Finance Holdings (Hong Kong) Limited. The bond bears a fixed annual interest rate of 4.20% and the interest is paid semi-annually.
(6) As approved by the CSRC, the Company issued 15 Orient Subordinated Bond with par value of RMB6 billion on 29 May, 2015. The bond bears an interest rate of 5.60% with a maturity period of 5 years and the interest is paid annually.

146

DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

34. BOND PAYABLES (Continued)

Note a: (Continued)

(7) Shanghai Orient Securities Futures Co., Ltd., the Company’s subsidiary, issued 15 Orient Future Subordinated Bond with par value of RMB600 million to qualified institutional investors on 18 June, 2015. The bond bears an interest rate of 6.82% with a maturity period of 3 years and the interest is paid annually.
(8) Orient Hongsheng Limited, the Company’s Hong Kong subsidiary, issued an Offshore RMB Bond with par value of RMB620 million on 5 August, 2015 which is consolidated in the former series of bonds which were issued on 26 November, 2014 with amounting to RMB900 million (see above (4)). The Offshore RMB Bond was guaranteed by Orient Finance Holdings (Hong Kong) Limited. and the Company entered into a keepwell deed. The bond bears a fixed annual interest rate of 6.50% and the interest is paid semi-annually.
(9) Orient Zhihui Limited, the Company’s Hong Kong subsidiary, issued a 3-year Offshore USD Bond with par value of USD150 million on 25 August, 2015. The Offshore USD Bond was guaranteed by Orient Finance Holdings (Hong Kong) Limited. and the Company entered into a keepwell deed as well. The bond bears a fixed annual interest rate of 4.09% and the interest is paid semi-annually.
(10) As approved by the CSRC [2015]2406, the Company issued a corporate bond with par value of RMB12 billion on 26 November, 2015. The bond bears an interest rate of 3.90% with a maturity period of 5 years and the interest is paid annually.
(11) As approved by the CSRC, the Company issued 16 Orient Subordinated Bond with par value of RMB4 billion on 14 November, 2016. The bond bears an interest rate of 3.45% with a maturity period of 5 years and the interest is paid annually.
(12) As approved by the CSRC, the Company issued a corporate bond with par value of RMB4 billion on 16 December, 2016. The bond bears an interest rate of 4% with a maturity period of 1 year and the interest is paid annually.
(13) As approved by the CSRC, the Company issued a subordinated bond with par value of RMB1.5 billion on 26 April, 2017. The bond bears an interest rate of 4.90% with a maturity period of 3 years and the interest is paid annually.
(14) As approved by the CSRC, the Company issued a subordinated bond with par value of RMB1.5 billion on 26 April, 2017. The bond bears an interest rate of 5.10% with a maturity period of 5 years and the interest is paid annually.
(15) As approved by the CSRC, the Company issued a subordinated bond with par value of RMB1.5 billion on 15 May, 2017. The bond bears an interest rate of 5.15% with a maturity period of 3 years and the interest is paid annually.
(16) As approved by the CSRC, the Company issued a subordinated bond with par value of RMB1.5 billion on 15 May, 2017. The bond bears an interest rate of 5.35% with a maturity period of 5 years and the interest is paid annually.
(17) As approved by the CSRC, the Company issued a corporate bond with par value of RMB4 billion on 9 June, 2017. The bond bears an interest rate of 5.30% with a maturity period of 3 years and the interest is paid annually.
(18) As approved by the CSRC, the Company issued a corporate bond with par value of RMB1 billion on 9 June, 2017. The bond bears an interest rate of 5.50% with a maturity period of 5 years and the interest is paid annually.

147

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

34. BOND PAYABLES (Continued)

Note b:

According to Securities Association of China (“SAC”)’s letter on approving the pilot of over the counter income certificate business (SAC [2014] 285), the Company was authorized to conduct income certificate business. The amount represents income certificates issued by the Company with maturities of more than one year. The yields of the outstanding income certificates varied from 3.55% to 6.30%, and from 3.50% to 6.30% per annum as at 30 June, 2017 and 31 December, 2016, respectively.

35. SHORT-TERM FINANCING BILLS PAYABLES

SHORT-TERM FINANCING BILLS PAYABLES
	As at	As at
	30 June, 31 December,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(audited)
Unsecured and unguaranteed:
Income certificates_(Note)_	4,266,042	4,942,779
Analysed as:
Over the counter	4,266,042	4,942,779

Note:

According to Securities Association of China (“SAC”)’s letter on approving the pilot of over the counter income certificate business (SAC [2014] 285), the Group and the Company has the authorization to conduct income certificate business. The yields of all the outstanding income certificates with original maturities of less than one year were ranged from 1.00% to 5.40%, and from 1.00% to 5.60% per annum as at 30 June, 2017 and 31 December, 2016, respectively.

36. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

As at 30 June, 2017 RMB’000 (unaudited)	As at 30 June, 2017 RMB’000 (unaudited)	As at 30 June, 2017 RMB’000 (unaudited)	As at 30 June, 2017 RMB’000 (unaudited)
Held for trading
– Coupon bearing bonds 336,824 – Gold borrowings 4,451,530 Designated at fair value through profit or loss – Interests attributable to other holders of consolidated structured entities 330,030
5,118,384
	5118384
		,	,

148

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For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

37. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS

FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS
As at 30 June, 2017 RMB’000 (unaudited)	As at 31 December, 2016 RMB’000 (audited)
Current Analysed by collateral type: Bonds 40,352,332 Securities-backed lending repurchase agreement 3,500,000 Advances to customers backed repurchase agreement 5,770,000 Others –	30,293,940 5,405,000 4,970,000 10,000
49,622,332	40,678,940
Analysed by market: Stock exchange 28,106,097 Inter-bank market 8,885,861 Over the counter 12,630,374	19,708,434 9,152,007 11,818,499
49,622,332	40,678,940
Non-current Analysed by collateral type: Securities-backed lending repurchase agreement – Advances to customers backed repurchase agreement 970,000	1,500,000 4,220,000
970,000	5,720,000
Analysed by market: Over the counter 970,000	5,720,000

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For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

38. SHARE CAPITAL

All shares issued by the Company are fully paid common shares. The par value per share is RMB1. The Company’s number of shares issued and their nominal value are as follows:

	As at	As at
	30 June, 31 December,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(audited)
Registered, issued and fully paid ordinary shares of RMB1 each
(in thousands):
Domestic shares	5,188,372	5,188,372
H shares	1,027,080	1,027,080
	6,215,452	6,215,452

39. DIVIDENDS

				Six months ended 30 June,	Six months ended 30 June,
				2017	2016
				RMB’000	RMB’000
				(unaudited)	(unaudited)
Dividends	recognised	as	distribution	932,318	1,848,611

No interim dividend was proposed by the Board of Directors in respect of the interim period for the six months ended 30 June, 2017 and 2016.

Pursuant to the resolution of the general meeting of Shareholders held on 5 June, 2017, the Company recognised cash dividends as distribution of RMB1.50 for every 10 shares (tax included) based on 6.22 billion shares held amounting to RMB0.93 billion in total for the year ended 31 December, 2016.

Pursuant to the resolution of the general meeting of Shareholders held on 25 May, 2016, the Company recognised cash dividends as distribution of RMB3.50 for every 10 shares (tax included) based on 5.28 billion shares held amounting to RMB1.85 billion in total for the year ended 31 December, 2015.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

40. CAPITAL COMMITMENTS

CAPITAL COMMITMENTS
	As at As at 30 June, 31 December, 2017 2016 RMB’000 RMB’000 (unaudited) (audited)
Capital expenditure in respect of acquisition of property and equipment:
Contracted but not provided for	71,291 71,291

41. OPERATING LEASE COMMITMENTS

The Group as lessee

At 30 June, 2017 and 31 December, 2016, the Group had total future minimum lease payments under non-cancellable operating leases in respect of rented premises falling due as follows:

As at	As at
30 June, 31 December,
2017	2016
RMB’000	RMB’000
(unaudited)	(audited)
Within one year 295,750	144,681
In the second year 271,410	111,282
In the third year 146,877	80,757
Over threeyears 74,342	73,304
788,379	410,024

Operating lease payments represent rentals payable by the Group on its office properties.

The Group as lessor

During the six months ended 30 June, 2017 and 2016, the Group did not have material lease commitment as lessor.

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151

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

42. RELATED PARTY RELATIONSHIP AND TRANSACTIONS

(1) Relationship of related party

The Group and major shareholders

Following major shareholders holding more than 10% shares of the Company is considered as a related party of the Group:

	Percentage	of shares held
	As at	As at
	30 June,	31 December,
	2017	2016
	%	%
	(unaudited)	(audited)
申能(集團)有限公司
Shenergy (Group) Company Limited	24.74	24.74

The Group and associates

The details of the associates of the Group is set out in Note 18.

Other related parties

Other related parties can be individuals or enterprises, which include: members of the Board of Directors, the Board of Supervisors and senior management, close family members of such individuals, and entities controlled by these individuals.

(2) Related party transaction and balances

As at 30 June, 2017 and 31 December, 2016, the Group had the following material balances with major shareholders and entities under their control:

					As at	As at
					30 June, 31 December,
					2017	2016
					RMB’000	RMB’000
					(unaudited)	(audited)
Account	payables	to	brokerage	clients	14,194	18,594

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152

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

42. RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (Continued)

(2) Related party transaction and balances (Continued)

For the six months ended 30 June, 2017 and 2016, the Group had the following material transaction with major shareholders and entities under their control:

	Six months ended 30 June,	Six months ended 30 June,
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Commission and fee income	14	43
Interest expenses	91	25,097

As at 30 June, 2017 and 31 December, 2016, the Group had the following material balances with associates:

	As at As at 30 June, 31 December, 2017 2016 RMB’000 RMB’000 (unaudited) (audited)
Account payables to brokerage clients	27,415 31
Other account payables	409,346 409,346
Other receivables	42,032 –
Short-term financing bills payables	300,000 –

For the six months ended 30 June, 2016 and 2015, the Group had the following material transaction with associates:

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----- Start of picture text -----

Six months ended 30 June,
2017 2016
RMB’000 RMB’000
(unaudited) (unaudited)
Commission and fee income 32,594 55,906
Interest expenses 1,731 2
Interim Report 2017 DFZQ
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153

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

42. RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (Continued)

(3) Key management personnel

Remuneration for key management personnel of the Group are as follows:

				Six months ended 30 June,	Six months ended 30 June,
				2017	2016
				RMB’000	RMB’000
				(unaudited)	(unaudited)
Short-term	benefits:
Salaries,	allowance	and	bonuses	15,348	27,410

43. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value of the financial assets and financial liabilities that are not measured on a recurring basis

The fair value of financial assets and financial liabilities not measured at fair value on a recurring basis is determined by the active market quotation or estimated using discounted cash flow method.

The main parameters used in valuation techniques for financial instruments held by the Group that are not measured on a recurring basis include interest rates, foreign exchange rates, early repayment rates and counterparty credit spreads, which are all observable and obtainable from open market.

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154

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are not measured on a recurring basis (Continued)

The table below summaries the carrying amounts and expected fair values with obvious variances of those financial assets and liabilities not presented on the Group’s condensed consolidated statement of financial position at their fair values.

	As at 30 June, As at 31 December,	As at 30 June, As at 31 December,
	2017 2016
	Carrying Fair Carrying	Fair
	amount value amount	value
	RMB’000 RMB’000 RMB’000	RMB’000
	(unaudited) (unaudited) (audited)	(audited)
Financial assets
Held-to-maturityfinancial assets	123,109 125,145 212,060	217,150
Financial liabilities
Bond payables
Corporate bonds	26,999,707 27,379,916 30,999,607	31,232,563
Subordinated bonds	21,599,493 21,597,983 15,599,298	15,595,289
Income certificates	14,128,217 14,112,855 13,572,217	13,552,201
Others	3,872,762 3,833,550 4,412,989	4,330,124
Total	66,600,179 66,924,304 64,584,111	64,710,177

Except for the above, the directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Group’s condensed consolidated statements of financial position approximate their fair values.

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For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis

Some of the financial assets and financial liabilities are measured at fair value at the end of the period. For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

The following tables give information about how the fair values of these financial assets and financial liabilities are determined including their fair value hierarchy, valuation technique(s) and key input(s) use.

Fair value as at Fair value hierarchy Valuation technique(s) and key input(s) Significant unobservable input(s) Relationship of unobservable input to fair value Financial assets/financial liabilities 30 June, 2017 31 December, 2016 (unaudited) (audited)	Fair value as at Fair value hierarchy Valuation technique(s) and key input(s) Significant unobservable input(s) Relationship of unobservable input to fair value Financial assets/financial liabilities 30 June, 2017 31 December, 2016 (unaudited) (audited)	Fair value as at Fair value hierarchy Valuation technique(s) and key input(s) Significant unobservable input(s) Relationship of unobservable input to fair value Financial assets/financial liabilities 30 June, 2017 31 December, 2016 (unaudited) (audited)
1) Available-for-sale financial assets Debt securities – Traded on stock exchanges 35,716,549 31,170,045 Level 1 Quoted bid price in an active market. N/A N/A – Traded on inter-bank market 16,079,430 22,869,608 Level 2 Discounted cash flow. Future cash flows are estimated based on applying the interest yield curves of different types of bonds as the key parameter. N/A N/A Equity securities – Traded on stock exchanges 1,832,580 4,777,624 Level 1 Quoted bid price in an active market. N/A N/A – Traded on National Equities Exchange and Quotations 599,549 597,285 Level 2 Recent transaction prices. N/A N/A – Restricted shares 306,050 333,801 Level 3 The fair value is determined with reference to the quoted market prices with an adjustment of discount for lack of marketability. Discounted for lack of marketability. The higher the discount, the lower the fair value. Funds – Traded on stock exchanges 392,310 365,509 Level 1 Quoted bid price in an active market. N/A N/A – Other funds 1,135,609 1,186,391 Level 2 Based on the net asset values of the funds, determined with reference to observable quoted) prices of underlying investment portfolio and adjustments of related expenses. N/A N/A Other investments – Collective assets management schemes issued by financial institutions 11,445,883 13,990,819 Level 2 Shares of the net value of the products, determined with reference to the net asset value N/A N/A
of the products, calculated by observable (quoted) prices of underlying investment portfolio and adjustments of related expenses.
	6	7,507,960 75,291,082
		7,507,960

157

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

								Relationship
		Fair value as at						of
							Significant	unobservable
		30 June,	31 December,		Fair value	Valuation technique(s)	unobservable	input to
Financial assets/financial liabilities		2017 (unaudited)	2016 (audited)		hierarchy	and key input(s)	input(s)	fair value
2)	Financial assets at FVTPL
	Debt securities
	– Traded on stock exchanges	6,941,706	1,907,781		Level 1	Quoted bid price in an active	N/A	N/A
						market.
	– Trade on inter-bank market	15,648,261	5,982,605		Level 2	Discounted cash flows. Future	N/A	N/A
						cash flows are estimated based
						on applying the interest yield
						curves of different types of
	Equity securities					bonds as the key parameter.
	– Traded on stock exchanges	8,710,986	1,966,735		Level 1	Quoted bid price in an active	N/A	N/A
						market.
	– Traded on National Equities	4,239,737	4,076,625		Level 2	Recent transaction prices.	N/A	N/A
	Exchange and Quotations
	– Restricted shares	123,405		187,077	Level 3	The fair value is determined with	Discounted	The higher the
						reference to the quoted market	for lack of	discount, the
						prices with an adjustment of	marketability	lower the fair
	Funds					discount for lack of marketability.		value
	– Traded on stock exchanges	2,462,359	3,169,165		Level 1	Quoted bid price in an active	N/A	N/A
						market.
	– Other funds	2,945,575	3,075,707		Level 2	Based on the net asset values	N/A	N/A
						of the funds, determined with
						reference to observable (quoted)
						prices of underlying investment
						portfolio and adjustments of
	Other investments					related expenses.
	– Collective assets management	1,956,069	2,963,498		Level 2	Shares of the net value of the	N/A	N/A
	schemes issued by financial					products, determined with
	institutions					reference to the net asset value of the products, calculated by observable (quoted) prices of underlying investment portfolio and adjustments of related expenses.
		43,028,098	23,329,193

Interim	Report 2017

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DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

Fair value as at
Fair value
hierarchy
Valuation technique(s)
and key input(s)
Significant
unobservable
input(s)
Relationship
of
unobservable
input to
fair value
Financial assets/financial liabilities
30 June,
2017
31 December,
2016
(unaudited)
(audited)

3)
Financial liabilities at FVTPL
Debt securities
– Trade on inter-bank market
336,824
2,787,366 Level 2
Discounted cash flows. Future
cash flows are estimated based
on applying the interest yield
curves of different types of
bonds as the key parameter.
N/A
N/A
Gold borrowing
4,451,530
4,420,325 Level 1
Quoted bid price in an active
market.
N/A
N/A
Collective assets management
schemes issued by financial
institutions
330,030
263,486 Level 2
Shares of the net value of the
products, determined with
reference to the net asset value
of the products, calculated by
observable (quoted) prices of
underlying investment portfolio
and adjustments of related
expenses.
N/A
N/A

5,118,384
7,471,177

159

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

							Relationship
		Fair value as at					of
						Significant	unobservable
		30 June,	31 December,	Fair value	Valuation technique(s)	unobservable	input to
Financial assets/financial liabilities		2017	2016	hierarchy	and key input(s)	input(s)	fair value
		(unaudited)	(audited)
4)	Derivative financial instrument
	(Continued)
	Equity return swaps-assets	16,630	13,331	Level 2	Calculated based on the	N/A	N/A
					difference between the equity
					return of underlying equity
					securities based on quoted
					prices from stock exchanges in
					the PRC and the fixed income
					agreed in the swap agreements
					between the company and the
					counterparty.
	Stock options-assets	3,342	12,776	Level 2	Calculated based on option	N/A	N/A
					pricing model, in consideration
					of contract term, the volatility,
					the discount rate, and quoted
					value of underlying assets.
	Stock options-liabilities	(11,552)	(1,795)	Level 2	Calculated based on option	N/A	N/A
					pricing model, in consideration
					of contract term, the volatility,
					the discount rate, and quoted
					value of underlying assets.
	Equity linked derivatives-liabilities	(580,016)	(49,578)	Level 2	Calculated based on the	N/A	N/A
					difference between the quoted
					prices of underlying equity
					securities from stock exchanges
					in the PRC and the fixed income
					agreed in the agreements
					between the company and the
					counterparty.
	Embedded option instruments-	(109)	(86)	Level 2	Discounted cash flows. Future	N/A	N/A
	liabilities				cash flows are estimated based
					on contracted interest rates with
					reference to the market prices of
					underlying assets.
	Gold swaps-liabilities	(162,842)	(216,405)	Level 1	Quoted bid prices in an active	N/A	N/A
	Currency swaps-assets	1,482	25,098	Level 2	market. Discounted cash flows. Future	N/A	N/A
Interim	Report 2017				cash flows are estimated based on spot exchange rates from observable spot exchange rates at the end of the Reporting Period) and spot exchange rates.

160

DFZQ Interim Report 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

								Relationship
		Fair value as at						of
							Significant	unobservable
Financial assets/financial liabilities		30 June, 2017 (unaudited)	31 December, 2016 (audited)		Fair value hierarchy	Valuation technique(s) and key input(s)	unobservable input(s)	input to fair value
4)	Derivative financial instrument
	(Continued)
	Currency swaps-liabilities	(9,019)	(151,313)		Level 2	Discounted cash flows. Future	N/A	N/A
						cash flows are estimated based
						on spot exchange rates from
						observable spot exchange rates
						at the end of the Reporting
						Period) and spot exchange rates.
	Credit default swap-assets	3,443		–	Level 2	Discounted cash flows. Future	N/A	N/A
						cash flows are estimated based
						on contracted interest rates with
						reference to credit default risk of
						underlying assets, discounted at
						a rate that reflects the credit risk
						of various counterparties.
	Credit default swap-liabilities	(4,523)		–	Level 2	Discounted cash flows. Future	N/A	N/A
						cash flows are estimated based
						on contracted interest rates with
						reference to credit default risk of
						underlying assets, discounted at
						a rate that reflects the credit risk
						of various counterparties.
		(817,411)	(348,668)

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Interim Report 2017 DFZQ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

As at 30 June, 2017 (unaudited)

	Level 1 Level 2 Level 3 Total RMB’000 RMB’000 RMB’000 RMB’000
Financial assets:
Available-for-sale financial assets
– Debt securities	35,716,549 16,079,430 – 51,795,979
– Equity investments	1,832,580 599,549 306,050 2,738,179
– Funds	392,310 1,135,609 – 1,527,919
– Others	– 11,445,883 – 11,445,883
Financial assets at FVTPL
– Debt securities	6,941,706 15,648,261 – 22,589,967
– Equity investments	8,710,986 4,239,737 123,405 13,074,128
– Funds	2,462,359 2,945,575 – 5,407,934
– Others	– 1,956,069 – 1,956,069
Derivative financial assets	1,331 37,675 – 39,006
Total	56,057,821 54,087,788 429,455 110,575,064
Financial liabilities:
Financial liabilities at FVTPL	4,451,530 666,854 – 5,118,384
Derivative financial liabilities	162,842 693,575 – 856,417
Total	4,614,372 1,360,429 – 5,974,801

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162

DFZQ Interim Report 2017

For the six months ended 30 June, 2017

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

As at 31 December, 2016 (audited)

	Level 1	Level 2	Level 3	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Financial assets:
Available-for-sale financial assets
– Debt securities	31,170,045	22,869,608	–	54,039,653
– Equity investments	4,777,624	597,285	333,801	5,708,710
– Funds	365,509	1,186,391	–	1,551,900
– Others	–	13,990,819	–	13,990,819
Financial assets at FVTPL
– Debt securities	1,907,781	5,982,605	–	7,890,386
– Equity investments	1,966,735	4,076,625	187,077	6,230,437
– Funds	3,169,165	3,075,707	–	6,244,872
– Others	–	2,963,498	–	2,963,498
Derivative financial assets	23	70,486	–	70,509
Total	43,356,882	54,813,024	520,878	98,690,784
Financial liabilities:
Financial liabilities at FVTPL	4,420,325	3,050,852	–	7,471,177
Derivative financial liabilities	216,405	202,772	–	419,177
Total	4,636,730	3,253,624	–	7,890,354

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163

Interim Report 2017 DFZQ

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June, 2017

43. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Fair value of the financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued)

The following table represents the changes in Level 3 financial instruments for the relevant period.

Available-for-sale financial assets

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----- Start of picture text -----

||||
|---|---|---|
|As at|As at|
|30 June,|30 June,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(unaudited)|
|At the beginning of the period|333,801|384,082|
|Changes in fair value recognised in other comprehensive income|(27,751)|2,813|
|Purchases|–|–|
|Transfers out of level 3|–|(337,820)|
|At the end of the period|306,050|49,075|

----- End of picture text -----

Financial assets at FVTPL

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----- Start of picture text -----

||||
|---|---|---|
|As at|As at|
|30 June,|30 June,|
|2017|2016|
|RMB’000|RMB’000|
|(unaudited)|(unaudited)|
|–|
|At the beginning of the period|187,077|
|–|
|Changes in fair value recognised in profit or loss|(63,672)|
|Purchases|–|–|
|–|
|At the end of the period|123,405|

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44. SUBSEQUENT EVENT

As approved by the CSRC [2017]974, the Company issued a corporate bond with par value of RMB4 billion on 3 August, 2017. The bond bears an interest rate of 4.98% with a maturity period of 10 years and the interest is paid annually.

164

DFZQ Interim Report 2017

AI assistant

DFZQ — Interim / Quarterly Report 2017

50931_rns_2017-08-27_b73b941e-acb8-485f-b28d-6748a4e8104a.pdf

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2017

PUBLICATION OF INTERIM RESULTS ANNOUNCEMENT AND INTERIM REPORT

CONTENTS

Page

Important Notice

IX. Material Risk Warnings

Important Notice

Ⅹ. Others

Section I Definitions

Section I Definitions

Section I Definitions

Section II Company Profile and Key Financial Indicators

I. COMPANY INFORMATION

Registered capital and net capital of the Company

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

II. CONTACT PERSONS AND CONTACT METHODS

III. CHANGES IN BASIC COMPANY INFORMATION

IV. CHANGES IN INFORMATION DISCLOSURE AND PLACE FOR INSPECTION

Section II Company Profile and Key Financial Indicators

V. BRIEF INFORMATION ON SHARES OF THE COMPANY

VI. OTHER RELEVANT INFORMATION

VII. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE COMPANY

(I) Key Accounting Data

Section II Company Profile and Key Financial Indicators

(II) Description of Key Financial Data

(III) Net Capital and Risk Control Indicators of the Company

VIII. DIFFERENCES BETWEEN IFRS AND PRC GAAP

Section III Summary of the Company’s Business

I. EXPLANATIONS ON THE PRINCIPLE BUSINESSES ENGAGED BY THE COMPANY, OPERATIONAL MODELS AND INDUSTRIAL CONDITIONS DURING THE REPORTING PERIOD

• Securities Sales and Trading

• Investment Management

Section III Summary of the Company’s Business

• Investment Banking

• Headquarters and Others

II. EXPLANATIONS ON MATERIAL CHANGE IN MAJOR ASSETS OF THE COMPANY DURING THE REPORTING PERIOD

III. ANALYSIS ON CORE COMPETITIVENESS DURING THE REPORTING PERIOD

1. Significant Improvement in Capital Strength

2. Distinguished Investment Management Capability

Section III Summary of the Company’s Business

3. Sound and Effective Compliance and Risk Management System

4. Stable Management Team and Established Personnel System

5. Outstanding Corporate Party Building and Corporate Culture Construction

I. DISCUSSION AND ANALYSIS ON OPERATIONS

(I) Overview of Operations

Section IV Directors’ Report

Section IV Directors’ Report

(II) Analysis of Principal Businesses

(1) Securities Sales and Trading

Proprietary trading

NEEQ market making

Innovative investment

Securities research

(2) Investment Management

Asset management

Fund management through China Universal

Section IV Directors’ Report

Private equity investment

(3) Brokerage and securities financing

Securities brokerage

Futures brokerage

Securities financing

Others

Section IV Directors’ Report

(4) Investment banking

Stock underwriting

Debt underwriting

Financial advisory services

(5) Headquarters and others

Treasury business and others

Overseas business

(2) Total expenditure

3. Input in social welfare

4. Cash flows

DFZQ Interim / Quarterly Report 2017