Everbright Securities Company Limited - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Everbright Securities Company Limited , you should at once hand this circular, together with the enclosed form of proxy and reply slip, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was affected for transmission to the purchaser or transferee.

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

Everbright Securities Company Limited 光大證券股份有限公司

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

(Stock Code: 6178)

(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS UNDER THE FRAMEWORK AGREEMENT (2) PROPOSED AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS (3) PROPOSED AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT AND USE OF FUNDS RAISED (4) PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY AND

(5) NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

Independent Financial Advisor to Independent Board Committee and Independent Shareholders

The 2018 second extraordinary general meeting (“ EGM ”) of Everbright Securities Company Limited (the “ Company ”) will be held at 2:30 p.m. on Tuesday, December 18, 2018 at Jing’an International Plaza, No. 1508, Xinzha Road, Jing’an District, Shanghai, the PRC. A notice convening the EGM is set out on pages 79 to 81 of this circular.

Whether or not you are able to attend the EGM, you are advised to read the notice of the EGM and to complete and return the enclosed form of proxy in accordance with the instructions printed thereon. For H Shareholders, the form of proxy or any other authorization documents should be returned to the Company’s H share registrar, Computershare Hong Kong Investor Services Limited, whereas A Shareholders should return the form of proxy to the Company’s Board office, and in any event in person or by post no later than 24 hours before the time appointed for convening the EGM (i.e. 2:30 p.m. on Monday, December 17, 2018) or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending in person and voting at the EGM or at any adjourned meeting.

If you intend to attend the EGM in person or by proxy, you are required to complete and return the reply slip to Computershare Hong Kong Investor Services Limited (for H Shareholders) on or before Wednesday, November 28, 2018.

October 31, 2018

CONTENTS

			Page
Definitions . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Letter from the	Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .		57
Letter from Gram Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			59
Notice of 2018 Second Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . .			79
Appendix I	–	Comparison Table of the Amendments to the Rules
		Governing the Management of Related Party
		Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	–	Comparison Table of the Amendments to the
		Rules Governing the Management and Use of Funds
		Raised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III	–	Proposed General Mandate to Issue Onshore Debt
		Financing Instruments of the Company . . . . . . . . . . . . .	III-1
Appendix IV	–	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1

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DEFINITIONS

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

“ABS” a means of financing through which traded securities are issued with specific asset portfolio or specific cash flow as support
“A Shareholders”
holders of A Shares
“A Shares”
domestic shares of the Company with a nominal value of RMB1.00 each, which are listed on the Shanghai Stock Exchange and traded in RMB
“Articles of Association” the articles of association of the Company
“associate(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules
“Board” the board of Directors of the Company
“CBIRC”
China Banking and Insurance Regulatory Commission
“Company” or “Everbright Securities”
Everbright Securities Company Limited (光大證券股份有限公司), a joint stock company incorporated in the PRC with limited liability and whose H Shares and A Shares are listed on the Hong Kong Stock Exchange (stock code: 6178) and the Shanghai Stock Exchange (stock code: 601788), respectively
“CSRC”
China Securities Regulatory Commission
“Directors”
the directors of the Company
“EGM”

the 2018 second extraordinary general meeting of the Company to be held at 2:30 p.m. on Tuesday, December 18, 2018

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DEFINITIONS

“Everbright Bank”

China Everbright Bank Company Limited (中國光大銀行股份有限公司), a company incorporated under the laws of the PRC on June 18, 1992 and converted into a joint stock company with limited liability in 1997. Its A shares are listed on the Shanghai Stock Exchange (stock code: 601818) and its H shares are listed on the Hong Kong Stock Exchange (stock code: 6818). Everbright Bank is a subsidiary of the Everbright Group due to consolidation of their financial statements and, therefore will be a connected person of the Company

“Everbright Fortune Leasing”
Everbright Fortune International Leasing Co., Ltd. (光大幸福國際租賃有限公司), a subsidiary of the Company
“Everbright Futures”
Everbright Futures Co., Ltd. (光大期貨有限公司), a wholly-owned subsidiary of the Company
“Everbright Group”
China Everbright Group Corporation Limited (中國光大集團股份公司) (previously known as China Everbright Group Limited (中國光大(集團)總公司)), a state-owned company incorporated under the laws of the PRC on November 12, 1990 and a controlling shareholder of the Company. The Everbright Group was converted into a joint stock company and renamed China Everbright Group Corporation Limited (中國光大集團股份公司) on December 8, 2014
“Everbright Limited”
China Everbright Limited (中國光大控股有限公司), a company listed on the Hong Kong Stock Exchange (stock code: 165) and is the second largest shareholder of the Company
“Everbright Pramerica”
Everbright Pramerica Fund Management Co., Ltd. (光大保德信基金管理有限公司), a controlling subsidiary of the Company
“Group” the Company and its subsidiaries
“Hong Kong Listing Rules” the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (as amended from time to time)
“H Shareholders” holders of H Shares

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DEFINITIONS

“H Shares”
“Hong Kong”
“Hong Kong Stock Exchange”
“Independent Board Committee”
“Independent Directors” or “Independent non-executive Directors”
“Independent Financial Adviser” or “Gram Capital”
“Independent Shareholders”
ordinary shares of the Company with a nominal value of RMB1.00 each, which are issued outside the PRC, listed on the Hong Kong Stock Exchange and traded in Hong Kong Dollars (stock code: 6178)
the Hong Kong Special Administrative Region of the PRC
The Stock Exchange of Hong Kong Limited
an independent board committee comprising all Independent non-executive Directors (namely Mr. Xu Jingchang, Mr. Xiong Yan, Mr. Li Zheping and Mr. Au Sing Kun) that has been formed to give advice to the Independent Shareholders with respect to the proposed New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps for the continuing connected transactions contemplated thereunder
the independent non-executive Directors of the Company
Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the Hong Kong Securities and Futures Ordinance, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of proposed New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps for the continuing connected transactions contemplated thereunder

those Shareholders who are not required to abstain from voting at the extraordinary general meeting with respect to the resolutions to be proposed with respect to New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps for the continuing connected transactions contemplated thereunder

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DEFINITIONS

“Latest Practicable Date”

October 26, 2018, being the latest practicable date for the purpose of ascertaining certain information referred to in this circular

“PPP”

Public-private Partnership

“RMB” the lawful currency of the PRC
“Shareholder(s)” shareholder(s) of the Company, including A Shareholders and H Shareholders
“Shares” shares of the Company, including A Shares and H Shares

“SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong

“SHKFGL” Sun Hung Kai Financial Group Limited (新鴻基金融集團有限公司), whose equity interest is held 70% by Everbright Securities Financial Holdings Limited (a wholly-owned subsidiary of the Company)

“Sun Life Everbright Life Sun Life Everbright Life Insurance Co., Ltd. (光大永明人 Insurance” 壽保險有限公司), an associate of the Everbright Group
“Supervisor(s)” the supervisor(s) of the Company
“Supervisory Committee” supervisory committee of the Company
“Wind Info”

Wind Information Co., Ltd. (上海萬得信息技術股份有限公司), a company with limited liability incorporated in the PRC in 1994 and an integrated service provider of financial data, information and software

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LETTER FROM THE BOARD

Everbright Securities Company Limited 光大證券股份有限公司

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

(Stock Code: 6178)

Mr. Xue Feng (Chairman, Executive Director) Mr. Ju Hao (Non-executive Director)

Mr. Yan Jun (Non-executive Director)
Mr. Song Bingfang (Non-executive Director)
Mr. Yin Lianchen (Non-executive Director)
Mr. Chan Ming Kin (Non-executive Director)
Mr. Xue Keqing (Non-executive Director)

Registered office and principal place of business in the PRC: No. 1508 Xinzha Road, Jing’an District, Shanghai, the PRC

Mr. Xu Jingchang (Independent Non-executive Director)
Mr. Xiong Yan (Independent Non-executive Director) Mr. Li Zheping (Independent Non-executive Director) Mr. Au Sing Kun (Independent Non-executive Director)

Place of business in Hong Kong: 24/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong

October 31, 2018

To the H Shareholders

Dear Sir or Madam,

(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS UNDER THE FRAMEWORK AGREEMENT

(2) PROPOSED AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS
(3) PROPOSED AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT AND USE OF FUNDS RAISED
(4) PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

AND

(5) NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

I. INTRODUCTION

On behalf of the Board, I would like to invite you to attend the EGM to be held at 2:30 p.m. on Tuesday, December 18, 2018 at Jing’an International Plaza, No. 1508, Xinzha Road, Jing’an District, Shanghai, the PRC. The purpose of this circular is to give you notice of the EGM and to provide you with information reasonably necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM.

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LETTER FROM THE BOARD

At the EGM, ordinary resolutions will be proposed to approve (1) the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto; (2) the resolution regarding the proposed amendments to the Rules Governing the Management of Related Party Transactions; and (3) the resolution regarding the proposed amendments to the Rules Governing the Management and Use of Funds Raised.

At the EGM, a special resolution will also be proposed to consider and approve the proposed general mandate to issue onshore debt financing instruments of the Company.

Ordinary Resolutions:

1. To consider and approve the Resolution Regarding the New Everbright Group Financial Products and Services Framework Agreement the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto

In the ordinary course of business of the Group, the Group, from time to time, enters into securities and financial products transactions (the “ Securities and Financial Products Transactions ”) with the Everbright Group and its associates, and also provides securities and financial services (the “ Securities and Financial Services ”) to the Everbright Group and its associates. Similarly, the Everbright Group and its associates also enter into the Securities and Financial Products Transactions with the Group and provide the Securities and Financial Services to the Group on normal commercial terms. To comply with the requirements of the Hong Kong Listing Rules, the Company entered into a financial products and services framework agreement (the “ 2016 Everbright Group Financial Products and Services Framework Agreement ”) with the Everbright Group in August 2016 prior to the listing of the H Shares on the Hong Kong Stock Exchange. This agreement is valid until December 31, 2018.

Given the expansion of the business qualifications and business scope of the Group and the expansion of the type and scope of business engaged by the Everbright Group and its associates in recent years and taking into account the expiry of the 2016 Everbright Group Financial Products and Services Framework Agreement on December 31, 2018, the Company proposes to renew the financial products and services framework agreement between the Company and the Everbright Group (the “ New Everbright Group Financial Products and Services Framework Agreement ”) on the basis of the 2016 Everbright Group Financial Products and Services Framework Agreement for a term of three years commencing from January 1, 2019 to December 31, 2021.

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LETTER FROM THE BOARD

A. Securities and Financial Products Transactions

A.1 Scope

A.1.1 Scope of the Securities and Financial Products Transactions

The Securities and Financial Products Transactions include the transactions relating to (a) securities products with fixed income features; (b) fixed income related derivative products; (c) equity related products; (d) financing transactions; and (e) other related securities and financial products permitted to be transacted under applicable laws and regulations.

Set forth below is the elaboration of the scope of the Securities and Financial Transactions under the New Everbright Group Financial Products and Services Framework Agreement and the comparison between such scope and that under the 2016 Everbright Group Financial Products and Services Framework Agreement.

2016 Everbright Group Financial New Everbright Group Financial Products and Services Framework Products and Services Framework Agreement Agreement

products with fixed income features, including bonds, funds, trust products, wealth management products and assets securitization products, convertible bonds and structured products with fixed income features
securities products with fixed income features, including but not limited to, bonds, funds, trust products, wealth management products, asset management schemes, assets securitization products, convertible bonds, bond lending and borrowing, structured products, swaps, futures, forwards, options and other financial products with fixed income features
fixed income related derivative • fixed income related derivative products and equity-linked products, including but not products, including interest limited to, interest rates and rates, credit risk derivative credit derivative products products and equity derivatives

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LETTER FROM THE BOARD

2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

equity-related products, including but not limited to, trading and/or subscription of equities (including in connection with market-making activities on the National Equities Exchange and Quotation) (the “ New Third Board ”), funds, trust products, wealth management products, asset management products and equity derivative products such as income swaps and convertible bonds
financing transactions – • financing transactions among financial institutions with or without guarantees, including interbank lending, repurchase, interbank deposits and holding of debt certificates
financing transactions – financing transactions among financial institutions with or without guarantees/pledges including but not limited to, interbank lending, repurchase, interbank deposits, usufruct, asset securitization, corporate account overdrafts, pledge loans, holding of debt certificates (including but not limited to, short-term financing bonds, structured notes, subordinated debts and corporate bonds)
other related securities and • financial products – including futures, foreign exchange and commodities trading
other related securities and financial products permitted to be transacted under applicable laws and regulations, including but not limited to, futures, foreign exchange, commodities trading and options

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LETTER FROM THE BOARD

A.1.2 Reasons for the proposed changes to the scope of the Securities and Financial Products Transactions

The primary reasons for the proposed changes to the scope of the Securities and Financial Products Transactions include:

(1) The Company has further refined the classification of the items under “securities products with fixed income features”, “fixed income related derivative products”, “financing transactions” and “other related securities and financial products” under the 2016 Everbright Group Financial Products and Services Framework Agreement in according to the actual conditions of the business of the Group and the business to be carried on by the Group in the next three financial years.
(2) The Company and its subsidiaries purchase the equity-linked financial products issued by Everbright Group and its associates in the ordinary and usual course of business out of actual business needs, and the associates of the Everbright Group also purchase the equity related financial products issued by the Company and its subsidiaries in the ordinary and usual course of business. The Company proposes to refine the classification of “equity-linked products” under the 2016 Everbright Group Financial Products and Services Framework Agreement to better align with the actual business conditions.
(3) The Company is qualified to act as market maker on the New Third Board. In its ordinary course of business, the Company may be engaged by an associate of the Everbright Group as market maker, and the issuance of shares by such associate of the Everbright Group to the Company in connection with market-making activities constitutes continuing connected transactions under the Hong Kong Listing Rules. Therefore, the scope of the Securities and Financial Products Transactions is revised to include trading and/or subscription of equities in connection with market-making activities on the New Third Board.
(4) The convertible bonds are traded on the PRC exchange bond market rather than the national interbank market. Such transactions will be included in the “equity derivative products” transactions proposed to be elaborated under the “equity related products” category.

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LETTER FROM THE BOARD

A.2 Pricing Basis of the Securities and Financial Products Transactions

The Securities and Financial Products Transactions are conducted through the PRC inter-bank bond market and the PRC exchange bond market, exchanges (including stock exchanges, futures exchanges, Shanghai Gold Exchange and China Foreign Exchange Trade System) and the open-ended fund market. Such transactions are and will continue to be carried on at the prevailing market prices in the ordinary and usual course of the Group’s business and with high frequency. The pricing mechanisms of the Securities and Financial Products Transactions depend on the particular trading venue on which the relevant transaction is carried on. (1) Securities and financial products traded on the PRC Inter-bank Bond Market and PRC Exchange Bond Market

The major types of securities and financial products traded on the PRC inter-bank bond market and the PRC exchange bond market include inter-bank lending, collateralized repurchase, buyout repurchase, spot trading, bond lending, asset securitization products, interest rate swap and inter-bank deposit. The pricing of the transactions conducted at the PRC inter-bank bond market and the PRC exchange bond market are based on the prices quoted in the PRC inter-bank bond market and the PRC exchange bond market. Such prices are mainly determined with reference to the valuation of the relevant securities and financial products published by China Central Depository & Clearing Co., Ltd. (“ CCDC ”), yield curve and the turnover details published by China Foreign Exchange Trading System & National Interbank Funding Centre (“ NIFC ”).

The Company has access to the NIFC and CCDC systems to obtain turnover information of the relevant securities and financial products. At the same time, the Company also reviews various bond market information published by NIFC, CCDC and other agents. For example, NIFC composes repurchase rates which is one of the key benchmarks for repurchase transactions in the PRC financial market. In addition, the Company has subscribed for information services provided by professional information service providers, such as Wind Info, and has access to information channels and websites of official and voluntary industry regulatory authorities, such as Asset Management Association of China, Chinamoney.com.cn and Chinabond.com.cn, etc., which publish periodic official and voluntary statistics and information on the industry from time to time.

China’s interbank bond market is an open, highly regulated quote-driven market regulated by the People’s Bank of China (the “ PBOC ”) pursuant to the Measures for the Administration of Bond Transactions in the National Interbank Bond Market (《全國銀行間債券市場債券交易管理辦法》). Transactions in the PRC interbank bond market must be reported to NIFC and

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LETTER FROM THE BOARD

are supervised by NIFC, CCDC and the National Association of Financial Market Institutional Investors (“ NAFMII ”). According to the relevant PRC laws and regulations, the prevailing market prices in the PRC interbank bond market are determined with reference to the bid and offer prices quoted on NIFC. All transactions, whether conducted through an authorized intermediate money brokerage firm or a market maker or through over-the-counter negotiations, have to be reported to NIFC and reflected in the price quotations provided by NIFC and CCDC. According to the Self-regulatory Rules for Bond Transaction in Inter-bank Bond Market (《銀行間債券市場債券交易自律規則》), the self-regulatory rules of NAFMII, abnormal pricing may result in disciplinary action by NAFMII, including public criticism. NAFMII is a self-regulatory organization responsible for supervising interbank transactions.

The PRC exchange bond market is an order-driven market governed by the CSRC. The transactions conducted through the PRC exchange bond market have to be conducted in accordance with the prevailing market prices quoted on the relevant PRC stock exchanges.

(2) Securities and financial products traded on the exchanges

The major types of securities and financial products traded on the Shanghai Stock Exchange, Shenzhen Stock Exchange, Shanghai Gold Exchange, futures exchanges and China Foreign Exchange Trade System include equities, funds, bonds (mainly including bond repurchase and asset securitization products), bullion products, futures and foreign exchange products. Share options are also traded on Shanghai Stock Exchange. Call auction mechanism is mainly adopted in these exchanges and the pricing is primarily determined with reference to the turnover of a particular securities and financial product. The Company has access to the trading systems of the relevant exchanges to obtain the real-time quotations of the relevant securities and financial products.

Certain securities and financial products may be traded on different exchanges. The pricing mechanisms of these securities and financial products shall be the pricing mechanisms adopted by the relevant exchange on which such securities and financial products are traded. For example, repurchases conducted through the stock exchange shall adopt call auction mechanism, whereas inter-bank repurchases shall be determined with reference to the benchmark interest rates, fixed repo rates published by NIFC and market turnover.

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LETTER FROM THE BOARD

(3) Securities and financial products traded on the open-ended fund market

The major types of securities and financial products traded on the open-ended fund market include fund products, trust products, wealth management products and asset management products (collectively, the “ Fund Products ”). The pricing of transactions conducted through the open-ended fund market is determined based on the unit net value of the relevant Fund Products on the date of transaction. The unit net value of such Fund Products is calculated by dividing the net asset value of the Fund Products by the total number of the fund units. The net asset value of the Fund Products is determined based on the China Accounting Standards for Business Enterprises and in accordance with the relevant requirements of the CSRC and the Asset Management Association of China, and taking into account the fund portfolio consisting of securities, bank deposits, receivables and other investments. The calculation of the unit net value of the Fund Products is set forth in the relevant fund contract and prospectus, and equally applies to all investors of the Fund Products. Pursuant to the relevant PRC laws and regulations, the unit net value of the Fund Products determined by fund managers shall be reviewed and examined by the relevant fund custodian bank and publicly disclosed on the relevant fund manager’s website and the media designated by the CSRC.

With respect to the pricing of securities and financial products without direct market quotations, the Company mainly refers to the quotation information provided by currency brokers. Currency brokers are entities set up with the approval of the CBIRC and subject to its regulation. Currency brokers specialize in facilitating transactions including intra-financial system financing, foreign exchange transactions, bond transactions and derivative transactions, who charge a commission from the provision of such brokerage services but do not directly engage in transactions of the relevant securities and financial products.

A.3 Pricing Approval and Supervision of the Securities and Financial Products Transactions

To ensure the terms of the Securities and Financial Products Transactions are on normal commercial terms or on terms no less favourable than terms applicable to independent third parties, the Group has adopted a series of internal approval and monitoring procedures. The major internal policies include the following:

(1) The Group has established its internal guidelines and policies for conducting transactions of different types of securities and financial products. Such policies and guidelines set out the requirements for pre-trading pricing enquiries, applicable interest rates, the procedures for price determination, approval authority and procedures, record keeping, supervision and review procedures for conducting transactions of different types of securities and financial products.

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LETTER FROM THE BOARD

(2) Before confirming the pricing of the transactions to be entered between the business departments or the subsidiaries of the Company on the one hand and the Everbright Group and its associates on the other, the Group shall refer to the pricing offered to or quoted by two or more independent third parties for contemporaneous transactions in similar quantities to determine if the pricing and terms for the relevant transaction are fair, reasonable and no less favourable than those quoted by independent third parties to the Group or no more favourable than those offered by the Group to independent third parties, as the case may be.
(3) To further strengthen the management of related party/connected transactions of the Company, align the differences regarding the regulatory requirements on related party/connected transactions between the PRC and Hong Kong after the listing of H Shares of the Company on the Hong Kong Stock Exchange and strictly manage the related party/connected transaction risks, the Company established a related party/connected transactions working group (the “ Related Party/Connected Transactions Working Group ”) in 2016. The Related Party/Connected Transactions Working Group comprises the Company’s relevant personnel from the Office of the Board (Supervisory Committee), Legal and Compliance Department and Planning and Finance Department, which is responsible for managing the Group’s related party/connected transactions on a daily basis. The business departments and the Company’s subsidiaries proposing to engage in various types of transactions shall take the responsibility to prove that the related party/connected transactions are entered into on normal commercial terms or on terms no less (more) favourable to those obtained or provided by independent third parties, and provide relevant evidence to prove such assertion according to the requirements of the Related Party/Connected Transactions Working Group.
(4) The Related Party/Connected Transactions Working Group collects data from the relevant business departments and the Company’s subsidiaries and reviews the actual transaction amounts of Securities and Financial Products Transactions on a regular or ad hoc basis to ensure that the annual caps would not be exceeded and remind the business departments and the Company’s subsidiaries to supervise and control such connected transactions.
(5) The continuing connected transactions are subject to annual review by all the independent non-executive Directors, the audit department of the Company and the auditors of the Company. The results of the review conducted by the independent non-executive Directors and the auditors of the Company are disclosed in the annual report of the Company.
(6) Documents and records with respect to related party/connected transactions are required to be maintained and kept properly.

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LETTER FROM THE BOARD

A.4 History Transaction Amounts of the Securities and Financial Products Transactions

The historical transaction amounts of the Securities and Financial Products Transactions under the 2016 Everbright Group Financial Products and Services Framework Agreement for the two financial years ended December 31, 2017 and the six months ended June 30, 2018 are as follows:

Securities and Financial Products Transactions In(1) Out(2) Total turnover	Approximate historical transaction amounts for the year ended December 31, for the six months ended June 30, 2016 2017 2018 (RMB million) 60,300 111,725 43,900 97,500 106,400 23,100 157,800 218,125 67,000	Approximate historical transaction amounts for the year ended December 31, for the six months ended June 30, 2016 2017 2018 (RMB million) 60,300 111,725 43,900 97,500 106,400 23,100 157,800 218,125 67,000
		67,000

Notes:

(1) “In” means the total cash inflow to the Group arising from sale of fixed income products and equity related products, interest received from derivative products associated with fixed income products, and through borrowing/repurchase from financing transactions.
(2) “Out” means the total cash outflow from the Group arising from purchase of fixed income products and equity related products, interest paid for derivative products associated with fixed income products, and through lending/reverse repurchase from financing transactions.

A.5 Proposed Annual Caps of the Securities and Financial Products Transactions for the Three Financial Years Ending December 31, 2021

A.5.1 Reasons of setting the total inflow and outflow of the Securities and Financial Products Transactions as the annual caps

Due to the nature of the Securities and Financial Products Transactions as described below, the Company considers that it is impracticable to set a maximum aggregate annual value for each category of these transactions:

(1) The volume of the Securities and Financial Products Transactions is affected by various external factors, such as economic and market conditions. Fluctuations in the PRC and Hong Kong financial

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LETTER FROM THE BOARD

markets may cause fluctuations in the volume of these transactions. Accordingly, the volume of these transactions varies from time to time and from year to year, and reference to historical amounts for these transactions may not be a fair indication of the expected aggregate value of the transactions for the next three financial years.

(2) Each of the Securities and Financial Products Transactions is entered into at the prevailing market prices in the ordinary and usual course of the Group’s business with high frequency and is marketdriven, which is based on, among others, the bidding price and timeliness of the bids. For example, the Company enters into interbank lending transactions and repurchase transactions with counterparties (including the Everbright Group and its associates) in open markets through the NIFC. The prices and process of these transactions are highly transparent. The rates for interbank lending are publicly published, while the interest rate for repurchases are determined in accordance with the benchmark repurchase rate. The Company’s counterparties in these transactions are determined primarily by transaction prices and timeliness, instead of by the Company’s subjective consideration.
(3) Most of these transactions are entered into in a very short time frame and are very sensitive to market prices. If an annual cap is set for each category of these transactions, it would cause significant delay to such transactions and harm to the Group’s existing operations and potential growth to the detriment of the Company and the Shareholders as a whole and restrict the Company’s overall competitiveness in a highly competitive securities industry. Therefore, strict adherence to the requirement of setting a maximum aggregate annual value for these transactions is impracticable to the Group.
(4) The Company or its subsidiaries plays a relatively passive role in some of the Securities and Financial Products Transactions that the Company or its subsidiaries enters into with the Everbright Group and its associates. As such, it is difficult for the Company or its subsidiaries to estimate the expected aggregate value of these transactions. For example, Everbright Bank invests in the asset management schemes issued by the Company and its subsidiaries with funds from its banking customers. In making such investment decisions, Everbright Bank is free to choose which asset management schemes to invest in, just like any other investors in the market. As a listed company, Everbright Bank exercises independent judgment when making such investment decisions and has adopted internal control measures to monitor its investment decision making.

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LETTER FROM THE BOARD

The Company or its subsidiaries has no control over which asset management schemes or financial products Everbright Bank chooses to invest in, as well as the amount of its investments.

(5) All such transactions will continue to be entered into at the prevailing market prices in an open market in the ordinary and usual course of the Group’s business.

Based on the above reasons, the Company considers that it is more practicable to set annual caps for the total inflow and outflow of the Securities and Financial Products Transactions instead.

A.5.2 Proposed annual caps for the three financial years ending December 31, 2021

The Directors estimate that the annual caps of the total inflow and outflow of the Securities and Financial Products Transactions under the New Everbright Group Financial Products and Services Framework Agreement for the three financial years ending December 31, 2021 are as follows:

Securities and Financial Products Transactions In(1) Out(2) Total turnover	Proposed annual caps for the year ending December 31, 2019 2020 2021 (RMB million) 230,000 280,000 340,000 230,000 280,000 340,000 460,000 560,000 680,000	Proposed annual caps for the year ending December 31, 2019 2020 2021 (RMB million) 230,000 280,000 340,000 230,000 280,000 340,000 460,000 560,000 680,000
		680,000

Notes:

(1) “In” means the total cash inflow to the Group arising from sale of fixed income products and equity related products, interest to be received from derivative products associated with fixed income products, and through borrowing/repurchase from financing transactions.
(2) “Out” means the total cash outflow from the Group arising from purchase of fixed income products and equity related products, interest to be paid for derivative products associated with fixed income products, and through lending/reverse repurchase from financing transactions.

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A.5.3 Basis of determination of the proposed annual caps

When estimating the annual caps of the inflow and outflow of the Securities and Financial Products Transactions, the Directors have taken into account, among others, the following factors:

General factors

1. The financial market in the PRC will continue to develop and new securities and financial products will constantly be issued

It is expected that the financial markets in the PRC will continue to develop and new securities and financial products will be constantly issued.

For example, (a) according to the statistics of the PBOC, the scale of existing social financing in the PRC substantially increased from RMB138.14 trillion as at the end of 2015 to RMB174.71 trillion as at the end of 2017, representing a growth of approximately 26%; (b) according to the information provided by Wind Info, the total issuance size of the credit bond in the PRC bond market increased from RMB17.2 trillion in 2015 to RMB32.3 trillion in 2017, representing a growth of approximately 88%; (c) according to the information published by the Asset Management Association of China, the total value of the assets under management by financial institutions in the PRC has experienced a substantial growth, increasing from approximately RMB38.2 trillion as at December 31, 2015 to approximately RMB53.6 trillion as at December 31, 2017, representing a growth of approximately 40%; (d) various innovative debt financing products in the PRC have constantly been launched since 2015 and the New Third Board and the OTC derivatives market also recorded considerable growth, leading to the emergence of green financial bonds, bonds with attached warrants, perpetual bonds, preference shares, structured notes, OTC options and many trading varieties and the size of business grows continuously; and (e) as the opening-up of the PRC financial industry accelerates, the financial market structure will further expand, alongside with more diversified financial products, which would lead to the increased frequency of the Securities and Financial Products Transactions.

2. Increasing cooperation between the securities companies and the banks and investments in each other’s financial products

The liberalization of interest rates in China has led the banking institutions in China to turn to wealth management products to attract deposits from customers. Although the commercial banks in China have good customer networks, they still lack the professional knowledge and experience that the securities firms in China have in aspects of research, investment and settlement management, product design and assets management. In addition, the

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commercial banks in China are restricted by the PRC laws and regulations to engage in equity investments. The asset management products and funds of the securities firms can therefore provide better investment channels to the commercial banks in China, including direct investment in equity investments.

It is expected that Everbright Bank will increasingly invest in the asset management products and funds issued by the Group to take advantage of the professional knowledge and experience of the Group in research, development and management of financial products. On the other hand, the Group may also increase the investment in the wealth management products issued by Everbright Bank so as to obtain stable investment returns.

3. Rapid growth of business scale of the Everbright Group and the synergistic strategy

In recent years, the Everbright Group has entered into a new phase of reform and development. Through vigorously promoting the Everbright Group’s linkage and effective integration of business resources, the level of operation and management continuously increased and the business development maintained good momentum with record-high operating results being constantly achieved. In 2015, the Everbright Group was on the Fortune Global 500 list and ranked 420[th] place for the first time. In 2018, the ranking was up by 98 places to 322[nd] place. As the business scale expands, the number of companies within the Everbright Group also has increased. Since 2015, the number of companies within the Everbright Group has grown from 665 to 920 as of the end of 2017, representing a growth of 38%. The Everbright Group, controlling a number of listed companies domestically and abroad, has become a large-scale financial holding group across China and overseas engaging in a variety of financial businesses including banking, securities, insurance, asset management, trust, futures, financial leasing as well as industrial businesses such as environmental protection, water treatment, garbage incineration power generation, new energy, culture and tourism, pharmaceutical and healthcare.

In 2018, the Everbright Group newly formulated its medium and long-term development strategies concurrently with the synergistic substrategy to promote and enhance the linkage among the group members to new heights from administration-driven to strategy-led. From 2019, the Everbright Group will focus on areas including organizational structure, working procedures and technology platform to promote the implementation of the synergistic sub-strategy continuously. It is expected that the internal cooperation of the Everbright Group will have an unprecedented increase in both depth and in width. Under this context, the scope and size of the connected transactions are expected to grow substantially.

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4. Expansion of the Group’s business scope and introduction of innovative products

The Group provides extensive financial products and services to its customers. Since 2015, the Group has accelerated the integration of business layout. For example, the Group completed the acquisition of 70% shares of Sun Hung Kai Financial Group Limited in 2015, established Everbright Pramerica Assets Management Co., Ltd. in 2015, completed the acquisition of the remaining 49% equity interests of China Everbright Securities International Limited in 2016, and initiated and established Everbright Development Investment Co., Ltd. in 2017. In addition, benefiting from the advancement of marketization reform of the PRC financial industry and the increased internationalization of the financial market, the Group’s scope of business has expanded and the Group has commenced engaging in new businesses including panda bonds, green financial bonds, trading of bullion and precious metals, proxy sale of bullion and precious metals, funds for merger and acquisition of listed companies, government industry types funds, private equity fund custody, futures and assets management, designated customer asset management and share option market making. As such, it is expected that the total net inflow and total net outflow of the Securities and Financial Products Transactions will grow substantially.

Specific factors and considerations

When estimating the annual caps for total net inflow and total net outflow, the Company has considered whether there are historical transactions in respect of a particular type of securities and financial products. Where there are related historical transactions, the Company calculated the percentage of historical transaction amount to the total historical transaction amount of that particular product and use the percentage value to calculate the estimated transaction amount for the next three financial years. The percentage value was adjusted by considering the volatility and growth of the product. Where there is no relevant historical transaction between the Everbright Group and its associates, the Company considered the total historical transaction amount of that particular product, estimated a percentage of transaction between the Everbright Group and its associates by considering the volatility and growth of the product, and used the percentage value to predict the estimated transaction amount for the next three financial years.

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The followings are the main specific factors and considerations that the Directors have taken into account when estimating the proposed annual caps of the inflow and outflow of the Securities and Financial Products Transactions:

In April 2018, the PBOC, the CBIRC, the CSRC and the State Administration of Foreign Exchange jointly promulgated the Guidance Opinions on Regulating the Asset Management Business of Financial Institutions (the “ New Regulations on Asset Management ”). Under the new regulatory landscape, the debt financing in China would transform from focusing on non-standard assets to standard assets. The Group will thoroughly look for the standardization financing needs of various financial and industrial companies within the Everbright Group and actively seize the opportunities arising from the development opportunity of assets securitization business. The Company will leverage on the customer resources, funding channels, sales network and market influence of the Everbright Group and its associates and fully capitalize on the synergies and business linkage to continuously expand the size of the asset securitization business. The size of the Company’s securitization asset management products increased from RMB486 million as at the end of 2015 to RMB17,430 million as at the end of June 30, 2018, representing an average annual growth rate of 319%. In the first half of 2018, the size of the Company’s securitization asset management products continued to maintain fast growth momentum. As at the end of June 2018, the size of the Company’s securitization asset management products increased by 141% as compared to that at the beginning of 2018. The Company expects that the size of the securitization asset management products for 2018 will grow by more than 200% and the growth rates for 2019, 2020 and 2021 are expected to maintain at a level above 100%.

In addition, during the first half of 2018, the ABS issued by the Company by proxy has increased substantially. In the first half of 2018, the size of the ABS issued by the Company was RMB18,968 million, as compared to RMB6,248 million in 2015, RMB11,596 million in 2016 and RMB19,639 million in 2017. The annualized growth rate from 2015 to the first half of 2018 was 77.3%. The Company estimates that the size of the ABS to be issued by it by proxy will maintain relatively fast growth where the growth rates in 2019 and 2020 are expected to range from 80% to 100% and the growth rate in 2021 is expected to range from 50% to 80%.

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In 2016 and 2017, the average annual growth rate of all of the Group’s asset management product flow was approximately 18% (among which the average annual growth rate of inflow was approximately 15% and the average annual growth rate of outflow was approximately 21%). In the first half of 2018, the volume of asset management product transactions between the Group and the Everbright Group and its associates grew considerably. The cash inflow amounted to approximately RMB23.6 billion, exceeding the total cash inflow of the relevant transactions in 2017. The Company expects that the growth rate for the entire year of 2018 will achieve approximately 100%. In 2018 and 2019, it is expected that the volume of the asset management transactions between the Group and the Everbright Group and its associates will grow up to 100% and the cash inflow will exceed RMB50.0 billion. If the capital market recovers in the future, and taking into account the factors of innovation in financial industry and acceleration of opening-up, the growth rate of the cash inflow in 2019 will maintain at 100% to 120% and slow down to approximately 50% in 2020 and 2021. Based on the product cycle and historical statistics, it is expected that the asset management product inflow and outflow will eventually become the same in general.

In addition, the transaction volume of the asset management products conducted between the Group and the Everbright Group and its associates as to the total transaction volume of the asset management products conducted by the Group increased from approximately 5.8% in 2017 to 9.3% for the six months ended June 30, 2018. The Company expects that, as the overall internal synergy strategy formulated by the Everbright Group continues to be implemented intensively, the transaction volume of the asset management products between the Group and the Everbright Group and its associates as to the total transaction volume of the asset management products conducted by the Group is expected to grow by 3.5%, 3.0% and 2.5%, respectively in 2019, 2020 and 2021.

In the first half of 2018, the total transaction flow of the financial products of the Company (including the transactions conducted with the Everbright Group and its associates and independent third parties) exclusive of the asset management products amounted to RMB1,265.0 billion (inflow) and RMB134.1 billion (outflow), representing 65% and 55% of the inflow and outflow of 2017, respectively. The growth rate for 2018 is expected to be approximately 10% to 30%. In 2016 and 2017, the cash inflow of the above transactions grew by 51%. If the capital market recovers in the future, and taking into account the factors of innovation in financial industry and acceleration of opening-up, the Company estimates that the total transaction volume of the financial products of the

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Company exclusive of the asset management products from 2019 to 2021 (including the transactions conducted with the Everbright Group and its associates and independent third parties) will grow from 20% to 50%.

The Group plans to increase the efforts and depth of market research, strictly control credit risks, proactively grasp the market trends, expand the scale of investments in interest rates securities and credit bonds with high ratings when opportunities arise, and adopt more neutral arbitrage strategies when there is no obvious tendency in the market. The implementation of such strategy is expected to increase the size of the Securities and Financial Products Transactions.

The size of investment in the Company’s interest rates securities and credit bonds with high ratings grew substantially from RMB446 million and RMB8,377 million as at the end of 2016 to RMB7,721 million and RMB32,956 million as at the end of 2017, respectively. As at the end of June 2018, the size of investment in interest rates securities and credit bonds reached RMB5,955 million and RMB34,526 million, respectively. It is expected that the aggregate amount in 2018 will exceed RMB50.0 billion, representing an average annual growth rate of over 100%. The Company estimates that the investment size of the Company’s interest rates securities and credit bonds with high ratings will continue to expand. However, there will be a declining trend in the growth rate. It is expected that the growth rate from 2019 to 2021 will range from 20% to 80%.

The cash position in relation to the Company’s neutral arbitrage strategy amounted to RMB250 million as at the end of 2017 and increased to RMB730 million as at the end of June 2018. The business size as at the end of June 2018 accounted for approximately 300% of that as at the end of 2017. The Company estimates that the cash position in relation to the Company’s neutral arbitrage will maintain relatively fast growth. However, there will be a declining trend in the growth rate. It is expected that the growth rate in 2019, 2020 and 2021 will be 250%, 150% and 100%, respectively.

Based on the above historical transaction amounts and the Company’s business strategy, the Company expects that the size of interest rates securities, corporate bonds with high ratings and cash position using neutral arbitrage strategy in the next three financial years will grow substantially.

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A.6 Maximum Daily Balance of Deposits and Waiver

In the ordinary course of the Group’s business, the Group deposits its proprietary funds and customers’ funds with Everbright Bank. Reference is made to the prospectus on the global offering of H Shares of the Company dated August 8, 2016, which disclosed the application to the Hong Kong Stock Exchange for a waiver to set a maximum daily deposit balance limit on the deposits of the Group’s proprietary funds and customers’ funds placed with Everbright Bank (the “ Maximum Daily Deposit Balance Limit ”) during the application for the listing of H Shares of the Company, and the Hong Kong Stock Exchange had granted the Company a waiver from strict compliance with the maximum daily balance requirements set out in Rule 14A.53 of the Hong Kong Listing Rules. Such waiver will be valid only until December 31, 2018.

In terms of the customers’ funds, the Company has no control over the amounts of such deposits and withdrawals, which are entirely at the discretion of a customer in accordance with his/her own trading requirements and the Company must act upon such instruction accordingly. In light of this, it would be extremely onerous and impracticable for the Group to estimate and set the Maximum Daily Deposit Balance Limit in respect of the customers’ funds.

In terms of the Group’s proprietary funds:

(1) It is difficult for the Company to set a cap on the daily deposit limit on the deposits of the Group’s proprietary funds, which are largely determined by ever-changing market conditions that could be fluctuated widely and unpredicted in advance by the Company.

• Margin financing and securities lending business :

The Company has registered the account information of its proprietary funds maintained at Everbright Bank with China Securities Depository and Clearing Corporation Limited (中國證券登記結算有限公司) (“ China Securities Depository and Clearing ”), the statutory clearance and settlement agent for margin financing and securities lending business in China, as the settlement account to receive the daily settlement funds in relation to the margin financing and securities lending transactions.

The daily amount of the settlement funds of the margin financing and securities lending transactions is closely related to the daily trading volume of the margin financing and securities lending transactions, which is largely affected by the prevailing securities market conditions. Since the prevailing securities market may fluctuate from time to time, it would be difficult for the Company to predict in advance the daily trading

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volume of the margin financing and securities lending transactions and thus the amount of daily settlement fund received from China Securities Depository and Clearing. Meanwhile, margin financing and securities lending transactions are initiated by customers and the Company is not able to predict the transactions to be conducted by its customers in advance.

• Underwriting business :

It is the general practice in Chinese securities markets that the investors are asked to wire their subscription funds in such transactions into the principal underwriter’s proprietary account first and the principal underwriter will then transfer such funds to the issuer’s account in a short period after deducting fees for the sponsors and underwriters.

The amount that may be transferred to the Company’s account out of such business would be depending on the deals that the Company participates as the principal underwriter and the amount that the corporate clients may raise from the offerings under the prevailing market conditions, which is hard to predict in advance.

• Private equity investment:

The Company engages in private equity investments primarily through its wholly-owned subsidiary, Everbright Capital Investment Co., Ltd. (光大資本投資有限公司) (“ Everbright Capital ”). Everbright Capital exits from its investment portfolios and gains investment returns through a number of means, including IPOs and trade sales. The time of exit and the amount of income to be received by Everbright Capital from liquidating the investment portfolios would be depending on the actual performance of the portfolio companies and the then prevailing market conditions. It is hard for the Company to predict the amount of funds that would be realized from its private equity investments which would be deposited into the Group’s proprietary funds account as well as the timing of receiving such funds.

• Proprietary trading:

The various financial products that the Company’s proprietary trading business invests in have their respective settlement agents, including but not limited to China Securities Depository and Clearing and China Interbank Bond Market (中國銀行間債券市場). Everbright Bank has been designated by the Company as the Company’s settlement bank for most of these financial products. Consequently, most of the settlement funds of the Company’s proprietary trading would be placed by the

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settlement agents in the deposit accounts of the Company maintained at Everbright Bank. The Company may from time to time liquidate some of its proprietary financial products and portfolios in order to realize funds, the amount of which however is highly uncertain and can be very substantial, and would largely be depending on the financial market conditions that could be fluctuated widely and unpredicted in advance by the Company.

If a cap is required to be set in respect of the daily deposit balance limit on the deposit of the Group’s proprietary funds realized from the Company’s proprietary trading placed with Everbright Bank, it will cause undue burdensome and inconvenience to the Group because of the following reasons:

a. The Company can only obtain the information about the amount of the deposit balance of the Group’s proprietary funds realized from the Company’s proprietary trading placed with Everbright Bank after trading hours.
b. Imposing a cap on the daily deposit balance of the Group’s proprietary funds placed with Everbright Bank may impose unduly restrictive to the Company’s proprietary trading business which may not be in the interest of the Company and its shareholders.
(2) Additionally, the deposit transaction could be regarded as “passive” in nature, where the Company deposits the funds with a commercial bank and the commercial bank pays the Company corresponding interests pursuant to the relevant terms and conditions.

In choosing which bank it should place its deposits with, the Group will consider various factors such as the deposit interest rate offered by banks, the geographical convenience of the branches located both domestically and overseas and other favorable terms offered by banks. The decision made by the Group in choosing the most appropriate bank to place its deposits with is entirely driven by commercial reasons and the deposit arrangements between it and Everbright Bank are also conducted based on normal commercial terms.

The Company is inclined to deposit the proprietary funds with Everbright Bank because of the following reasons:

a. the Company has had long-term cooperation with Everbright Bank in fund management. For example, as mentioned above, the Company has registered Everbright Bank as its receiving bank with major settlement agencies for various financial products and transactions that the Company invests or engages so as to receive

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the settlement amount. Through such long-term cooperation, Everbright Bank has been quite familiar with the procedures of the Company’s fund management, which contributes to the Company’s operational efficiency in fund management. If the Company has to change such account to an account maintained at an independent commercial bank, it would cause unnecessary interruption to the Company’s daily business operation which is not in the best interest of the Company;

b. as the group’s overall development strategy, Everbright Group has been encouraging its member companies (including the Company and Everbright Bank) to cooperate in various aspects to achieve synergistic effect. Based on the past experience, Everbright Bank can always utilize its firm-wide resources to provide prompt support to the Group’s need for fund operation, which facilitates the effective operation of the Group’s businesses; and
c. prior to deciding to deposit the proprietary funds with Everbright Bank, the Group would ascertain that the terms offered to the Group by Everbright Bank are fair, reasonable and no less favorable than those offered by independent commercial banks.

In the event that any further amendments to the Hong Kong Listing Rules imposing more stringent requirements on the continuing connected transactions referred to herein than those currently applicable to the Company, the Company will take immediate steps to ensure compliance with such new requirements within a reasonable period of time.

Given the factors above, the Company has again applied to the Hong Kong Stock Exchange for a waiver from strict compliance with setting the Maximum Daily Deposit Balance Limit as required under Rule 14A.53 of the Hong Kong Listing Rules. The Company was granted a waiver from the Hong Kong Stock Exchange on September 14, 2018 which waives the Company’s obligation to set the Maximum Daily Deposit Balance Limit under the New Everbright Group Financial Products and Services Framework Agreement. For detailed reasons for the application for such waiver, please refer to the announcement of the Company dated September 17, 2018.

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B. Securities and Financial Services

B.1 Scope of the Securities and Financial Services

B.1.1 Scope of the Securities and Financial Services to be provided by the Group to the Everbright Group and its associates

The scope of the Securities and Financial Services to be provided by the Group to the Everbright Group and its associates include (a) underwriting and sponsorship services; (b) brokerage services; (c) financial products proxy sale services; (d) entrusted asset management services; (e) leasing of trading seats; (f) advisory and consulting services, and commodities services; (g) PPP financial services; (h) financial leasing services and factoring financial services; and (i) other securities and financial services permitted by the applicable laws and regulations.

Set forth below is the elaboration of the scope of the Securities and Financial Services provided by the Group to the Everbright Group and its associates and the comparison between such scope and that under the 2016 Everbright Group Financial Products and Services Framework Agreement.

2016 Everbright Group Financial New Everbright Group Financial Products and Services Framework Products and Services Framework Agreement Agreement

underwriting and sponsorship services – including underwriting and sponsorship services for equity securities, fixed income products, structured products and other derivative products
underwriting and sponsorship services – including but not limited to, underwriting, sponsorship and continuous supervision and guidance services for equities, fixed income products, structured products and other derivative products
other investment banking services – including corporate restructuring, mergers and acquisition advisory services

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2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

brokerage services – including securities brokerage and related financial products brokerage services
brokerage services – including but not limited to, securities brokerage and related financial products brokerage services as well as futures brokerage services such as treasury bond futures
financial products proxy sale • services – including provision of agency sale services
proxy sale of financial products services – including but not limited to, provision of proxy sale services for financial products
entrusted asset management services – including asset management services for assets entrusted by customers
entrusted asset management services – including but not limited to, asset management services for assets entrusted by customers
leasing of trading seats
other securities and financial advisory and consulting services
advisory and consulting services, commodities services, including but not limited to, financial advisory services relating to corporate restructuring, reorganization, mergers and acquisition, asset management and wealth management, and consulting services
PPP financial services
financial leasing services and factoring financial services
other securities and financial services permitted by the applicable laws and regulations

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The primary reasons for the proposed changes to the scope of the Securities and Financial Services to be provided by the Group to the Everbright Group and its associates include:

(1) The Company has obtained the qualification to provide continuous supervision and guidance for companies whose shares are quoted on the New Third Board. As such, the Company may provide continuous supervision and guidance to associates of the Everbright Group whose shares are quoted on the New Third Board.
(2) The Group has obtained the qualification to conduct commodities trading-related services and may provide such services to the Everbright Group and its associates, which will constitute connected transactions of the Company.
(3) The members of the Group have obtained the qualification to engage in PPP financial services, financial leasing services and factoring financial services, and may provide such services to the Everbright Group and its associates, which will constitute connected transactions of the Company.
(4) The Company proposes to refine the classification of the items under “underwriting and sponsorship services”, “other investment banking services” and “brokerage services” under the 2016 Everbright Group Financial Products and Services Framework Agreement in according to the actual conditions of the business of the Group and the anticipated business to be carried on in the next three financial years.
B.1.2 Scope of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group

The scope of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group include (a) deposit services; (b) proxy sale of financial products services; (c) deposits management and custody services; (d) loan services; (e) insurance services; (f) financial leasing services and factoring financial services; (g) financial and securities advisory and consulting services; and (h) other securities and financial services permitted by the applicable laws and regulations.

Set forth below is the elaboration of the scope of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group and the comparison between such scope and that under the 2016 Everbright Group Financial Products and Services Framework Agreement.

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2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

deposit services – including (a) deposits of cash balances arising from the Group’s business operations including the Group’s daily operations, proceeds from the Group’s fund raising activities such as equity and bond issues; (b) cash deposits from the Group’s customers; and (c) other deposits
deposit services – including but not limited to, (a) deposits of cash balances arising from the Group’s business operations including cash from daily operations, proceeds raised from equity and bond issuances; (b) cash deposits from the Group’s customers; and (c) other deposits
financial products sale services – including provision of agency sale services for the Group’s financial products
proxy sale of financial products services, including but not limited to, provision of agency sale services for the Group’s financial products and precious metals
client deposits management services – including management services provided by the Everbright Group and its associates for managing the deposits of the Group’s nonfinancial institution customers, which are required by the relevant PRC laws and regulations to be deposited into the Group’s account with a PRC bank
deposits management and custody services, including but not limited to, management services provided by members of the Everbright Group for managing the deposits of the Group’s non-financial institution customers, which are required by the relevant PRC laws and regulations to be deposited into the Group’s special account with a PRC commercial bank, and custody services provided by members of the Everbright Group for the securities and financial products issued by the Group
loan services – including loans • as the Group’s working capital provided by the Everbright Group and its associates
loan services, including but not limited to, funds required for daily operations and loans as working capital

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2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

other securities and financial advisory and consulting services and monetary brokerage services
insurance services, including but not limited to, employee insurance
financial leasing service and factoring financial services
financial and securities advisory and consulting services, monetary brokerage services and commodities services, etc.
other securities and financial services permitted by the applicable laws and regulations

The primary reasons for the proposed changes to the scope of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group include:

(1) Certain associates of the Everbright Group are licensed to provide commodities trading related services and may provide such services to the Group.
(2) The Group may engage in sale of precious metals in its commodities trading and may appoint the licensed associates of the Everbright Group as agent for the sale of precious metals for which the agency sale expenses incurred will constitute connected transactions of the Group.

B.2 Pricing Basis of the Securities and Financial Services

B.2.1 Pricing basis of the Securities and Financial Services to be provided by the Group to the Everbright Group and its associates

The Group primarily charges service fees, commissions and other fees for the Securities and Financial Services to be provided to the Everbright Group and its associates. The respective pricing mechanisms for the relevant Securities and Financial Services are set forth below:

(1) underwriting and sponsorship services : the securities underwriting and sponsorship services market is highly competitive and the commission rates and fees have become generally

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transparent and standardized across the market. The commission rates and fees charged to the Everbright Group and its associates by the Company are determined based on arm’s length negotiation with reference to factors including the prevailing market rates for offerings of a similar type and the amount of proceeds raised from the offering.

With respect to the equity-related underwriting and sponsor services, the fees are determined with reference to the prevailing market rates for transactions of similar type and size and taking into account the nature of the particular offering, the complexity of the transaction, the size of the transaction, the frequency the relevant customer engaging in transactions with the Company and the prevailing market conditions. Based on the foregoing factors, the fees are determined through competitive bidding and business negotiation or with reference to the standard fee charged by independent third parties in other similar projects.

With respect to the underwriting fee for enterprise bonds, the Company mainly refers to the standard underwriting fee proposed under the Notice of National Development and Reform Commission regarding Certain Matters on Instructing the Issue Size and Issue Approval for the First Batch of Enterprise Bonds in 2007 (《國家發展改革委關於下達2007年第一批企業債券發行規模及發行核准有關問題的通知》) and makes corresponding adjustments after taking into account the enterprise bond issuer’s qualifications and market conditions.

With respect to the underwriting fee for corporate bonds, interbank products and asset securitization products, given that the competent authorities have not formulated any guidance on the underwriting fee of such products, the underwriting fees among the industry vary according to the issuer, type and term of bonds. The rate charged by the Company generally ranges from 0.05% to 0.5%, which is mainly determined based on the foregoing factors and negotiations with issuer and competitive bidding.

(2) brokerage services : the commission rates for these services have become generally transparent and standardized across the market. The commission rates are determined based on arm’s length negotiation with reference to the prevailing market rates for securities, which, for trading of A shares on the Shanghai Stock Exchange and B shares on the Shenzhen Stock Exchange, cannot

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exceed 0.3% of the amount of the relevant securities trade or lower than the relevant fees paid to the relevant securities exchange, or futures sales or trades of a similar type and the amount of the sale or trade.

With respect to futures brokerage services, Everbright Futures charges all customers a fee for futures trading of no less than the standard fee charged by the relevant futures exchanges. In the event that adjustments are made by the relevant futures exchanges to the standard fee, Everbright Futures will also make corresponding adjustments to the standard fee charged to all customers.

(3) proxy sale of financial products services : the pricing for proxy sale of financial products services shall be determined in accordance with the Company’s business guiding principle for proxy sale of financial products and based on the prevailing practice of proxy sale business conducted by financial institutions including securities firms and commercial banks with reference to the type of financial products sold by proxy and the frequency the investor engaging in transactions with the Company after arm’s length negotiation of the parties. There is no standardized quotation for proxy sale of financial products on the market. The Company primarily determines the general pricing range based on the studies of industry’s general practice, feedbacks and opinions on pricing from issuers of financial products. The annualized market fee rate generally ranges from 0.2% to 2.0%.
(4) entrusted asset management services : entrusted asset management services mainly include targeted and specialized asset management services. Asset management service fees shall be determined based on factors including market rates, market practices, the scale of assets under management of the asset management schemes and the management terms.

For targeted asset management services, the Company charges management fees as a certain percentage of the scale of assets under management based on the standard fee rate for each separate asset management scheme. For specialized asset management services, the management fees charged by the Company are determined on arm’s length negotiation based on factors including the current market rates, the scale of the entrusted assets and the complexity of provision of tailored services.

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The Company may obtain the prevailing market rates through publicly available information in the industry (such as the information published on the official website of peers or the information published by third party information platforms such as Wind Info), feedback from sale channels and communications with peers.

(5) leasing of trading seats : the Company charges a percentage of the trading volume in respect of each trade conducted through its trading seats as its commission where such percentage shall be determined based on the then prevailing market price and industry practice. The commission rate charged on the leasing of trading seats is generally transparent across the market. The rental rates of trading seats under prevailing industry practice is generally 0.08%, and the rental rates of trading seats charged to the Everbright Group and its associates and independent third party by the Company are based on these industry standards and practices.
(6) advisory and consulting services : fees for such services are determined based on arm’s length negotiation with reference to the prevailing market rates for transactions of similar type and size and taking into account the nature of the transaction, the complexity of the transaction, the size of the transaction, the frequency the relevant customer engaging in transactions with the Company and the prevailing market conditions. The Company provides the quotation to the customers based on the foregoing factors. After the customer has accepted the quotation of the Company, both parties will enter into the service agreement and provide services in accordance with the agreement.
(7) PPP financial services : the fee for PPP financial services provided by the Group to the Everbright Group and its associates is primarily determined with reference to the market rates of PPP projects of similar type and size after arm’s length negotiation and taking into account the financing size agreed upon between the party seeking financing and the social capital party to the PPP project.
(8) financial leasing services : the rates of such services have become generally transparent and standardized across the market. The rental interest and rates charged to Everbright Group and its associates by Everbright Fortune Leasing are determined based on the then funding and management costs of Everbright Fortune Leasing in addition to reasonable profits on arm’s length negotiation after taking into account the risks associated with the financial leasing projects and market competition.

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(9) factoring services : the rates of such services have become generally transparent and standardized across the market. The rates charged to the Everbright Group and its associates are determined based on the then funding and management costs of the Company in addition to reasonable profits on arm’s length negotiation after taking into account the risks associated with the factoring projects and market competition.
B.2.2 Pricing basis of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group

The Everbright Group and its associates primarily charge services fees for the Securities and Financial Services to be provided to the Group. The respective pricing mechanisms for the relevant Securities and Financial Services are set forth below:

(1) deposit services : the deposit interest rate shall not be less than the similar deposit interest rate of the commercial bank approved by the PBOC for the same period, and shall be determined according to the market rates of deposits in the financial industry, and shall not be less than the interest rate offered by Everbright Bank to other customers for similar deposits.
(2) proxy sale of financial products services : the pricing for proxy sale of financial products services shall be determined based on the prevailing practice of proxy sale business carried on by financial institutions including securities firms and commercial banks with reference to the type of the financial products sold by proxy after arm’s length negotiation of the parties. The pricing for proxy sale of different types of financial products varies. The annualized market fee rate generally ranges from 0.2% to 2.0%.
(3) deposit management and custody services : the management and custody fees are determined on arm’s length negotiation with reference to current market rates and taking into account the size of the products and the nature of the products.
(4) loan services : the interests on the financing shall be determined by reference to the relevant interest rates stipulated by the PBOC for the same period, and will take into account the factors such as the purpose and terms of the financing.

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(5) insurance services : the Company purchased insurance services primarily through tender organized by the Company’s Bulk Procurement Management Centre (大額採購管理中心) where a number of insurers capable of providing the insurance services required by the Group are invited to submit their bids. The reviewing team comprising personnel from the Bulk Procurement Management Centre, Planning and Finance Department, and Legal and Compliance Department of the Company will conduct a comprehensive assessment based on the type of services provided by the insurers submitting the biddings, their quotations and relevant experience by adopting the scoring method to select insurance service provider. As such, the pricing of the insurance services is primarily determined by competitive bidding.
(6) financial leasing services : the rates of such services have become generally transparent and standardized across the market. The rental interest and rates charged to the Group by the Everbright Group and its associates are mainly determined on arm’s length negotiation with reference to the general market fee rates and in conjunction with the potential risks of specific financial leasing projects.
(7) factoring services : the rates of such services have become generally transparent and standardized across the market. The rates of factoring fees charged to the Group by the Everbright Group and its associates are mainly determined on arm’s length negotiation with reference to the general market fee rates and in conjunction with the potential risks of special factoring projects.

B.3 Pricing Approval and Supervision of the Securities and Financial Services

The Group has adopted a series of internal pricing policies and approval procedures to regulate the mutual provision of the Securities and Financial Services between the Group and the Everbright Group and its associates. The major internal policies include the following:

(1) The terms (including pricing terms) in respect of the Securities and Financial Services shall be comparable to those offered by/to an independent third party for comparable services, and shall be subject to the same internal selection, approval and supervision procedures and pricing policies applicable to an independent third party.

The Group has subscribed for information services provided by information service providers, such as Wind Info, and has access to information channels and websites of official and voluntary industry regulatory authorities. The Company will consider the various updated

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market information available, including published information on completed transaction amounts and rates, and terms offered by the transaction parties prior to entering into the Securities and Financial Services.

(2) In respect of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group, the Company or its subsidiaries will collect information of certain suppliers who could provide similar Securities and Financial Services (including the information about fee and price level) and compare the quality and price level of the services provided by the independent third party with that offered by the Everbright Group and the associates of Everbright Group. The Group will generally refer to the pricing provided to two or more independent third parties for similar services to determine whether the prices and terms offered by the Everbright Group and its associates are fair and reasonable and no less favourable than those offered by the independent third parties to the Group.
(3) In respect of the Securities and Financial Services to be provided by the Group to the Everbright Group and its associates, the Company or its subsidiaries will refer to the pricing provided to two or more independent third parties for similar services to determine whether the prices and terms offered by the Company or its subsidiaries to the Everbright Group and its associates are fair and reasonable and no more favourable than those offered by the Company or its subsidiaries to the independent third parties.
(4) The Related Party/Connected Transactions Working Group collects data from the relevant business departments and the Company’s subsidiaries and reviews the actual transaction amounts of different types of the Securities and Financial Services on a regular or ad hoc basis to ensure that the annual caps would not be exceeded and remind the business departments and the Company’s subsidiaries to supervise and control such connected transactions.
(5) The continuing connected transactions are subject to the annual review by all the independent non-executive Directors, the audit department of the Company and the auditors of the Company. The results of the review conducted by the independent non-executive Directors and auditors of the Company are disclosed in the annual report of the Company.
(6) Documents and records with respect to related party/connected transactions are required to be maintained and kept properly.

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B.4 Historical Transaction Amounts of the Securities and Financial Services

The historical transaction amounts of the Securities and Financial Services under the 2016 Everbright Group Financial Products and Services Framework Agreement for the two financial years ended December 31, 2017 and for the six months ended June 30, 2018 are as follows:

	Approximate historical	Approximate historical	Approximate historical
	transaction amounts
			for the
	for the year ended		six months
Securities and Financial	December 31,		ended
Services			June 30,
	2016	2017	2018
	(RMB million)
Revenue generated by the
Group from provision of
the Securities and Financial
Services to the Everbright
Group and its associates	338.5	320.4	105.9
Fees paid by the Group to
the Everbright Group and
its associates for their
provision of the Securities
and Financial Services	119.0	117.1	43.3

B.5 Proposed Annual Caps of the Securities and Financial Services for the Three Financial Years Ending December 31, 2021

B.5.1 Proposed annual caps for the three financial years ending December 31, 2021

The Directors estimate that the annual caps for the continuing connected transactions in respect of the mutual provision of the Securities and Financial Services under the New Everbright Group Financial Products and Services Framework Agreement for the three financial years ending December 31, 2021 as follows:

Securities and Financial	Proposed annual caps for the	Proposed annual caps for the	Proposed annual caps for the
Services	three years ending December 31,
	2019	2020	2021
		(RMB million)
Revenue to be generated by
the Group from provision
of the Securities and
Financial Services to the
Everbright Group and its associates(1)	950.0	1,050.0	1,200.0
Fees to be paid by the Group
to the Everbright Group
and its associates for their
provision of the Securities
and Financial Services	250.0	290.0	330.0

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Note:

(1) As disclosed in an announcement of the Company dated September 17, 2018 and paragraph A.6 above, it is very difficult for the Company to set the Maximum Daily Deposit Balance Limit due to various reasons. As such, the Company has applied to the Hong Kong Stock Exchange, and the Hong Kong Stock Exchange has granted a waiver to the Company in respect of the Company’s obligation to set the Maximum Daily Deposit Balance Limit under the New Everbright Group Financial Products and Services Framework Agreement. Such waiver will be valid until December 31, 2021.

However, by making reference to the Group’s average annual deposits balance placed with Everbright Bank for the two financial years ended December 31, 2017 and the semi-annual deposits balance placed with Everbright Bank for the six months ended June 30, 2018 and other relevant factors further elaborated in paragraph B.5.2(1) below, the Company is able to roughly estimate the Group’s average annual deposits balance placed with Everbright Bank for the next three financial years ending December 31, 2021 and thus the approximate interest income to be paid by Everbright Bank for the next three financial years in respect of the deposits placed by the Group with Everbright Bank. Such estimated interest income has been included in the annual caps for the revenue to be generated by the Group from the Everbright Group and its associates.

B.5.2 Basis of determination of the proposed annual caps for the revenue to be generated by the Group from provision of the Securities and Financial Services to the Everbright Group and its associates

When estimating the annual caps for the revenue to be generated by the Group from provision of the Securities and Financial Services to the Everbright Group and its associates, the Directors have taken into account the historical transaction amounts in 2016 and 2017 and for the six months ended June 30, 2018. In addition, the Directors have considered, among other things, the following key factors:

(1) In the ordinary course of the Group’s business, the Group deposits its proprietary funds and customers’ funds with Everbright Bank. The Company has included the estimated interest to be paid by Everbright Group on deposits of the Group’s proprietary funds and customers’ funds placed with Everbright Bank in the proposed annual caps. In addition to the actual interest paid by Everbright Bank for the Group’s proprietary funds and customers’ funds for the two financial years ended December 31, 2017 and six months ended June 30, 2018, the Company has taken the following factors into account when estimating the estimated annual deposit interest income to be paid by Everbright Bank:
a. Everbright Group has newly formulated the medium and long-term strategic plans and synergistic sub-strategy concurrently to promote and enhance the Everbright Group’s linkage work to new heights from administration-driven to strategy-led. These strategic plans will be intensively

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implemented from 2019. Subject to the condition that the terms offered by Everbright Bank to the Group are on normal commercial terms or no less favorable than those offered by independent third party commercial banks to the Group, it is expected that the percentage of the Group’s deposits to be placed with Everbright Bank will increase substantially in the next three financial years. Taking into account the possibility of increased interest rates and increased customers’ deposits due to the recovery of the PRC stock market, it is estimated that the annual interest income to be paid by Everbright Bank will reach RMB300 million to RMB350 million in the next three financial years.

b. Depending on the actual financing needs and market conditions of domestic and overseas capital markets, the Group may raise additional funds through various financing methods. Subject to the condition that the terms offered by Everbright Bank to the Group are on normal commercial terms or no less favorable than those offered by independent third party commercial banks to the Group, the Group anticipates to deposit the unutilized proceeds with Everbright Bank, leading to an increase in the total interest income payable to the Group by Everbright Bank.
(2) As one of the core financial services platforms of the Everbright Group, it is expected that the Group will continue to provide Everbright Group and its associates with investment banking-related services with respect to the issuance of equity-related and debt-related financing tools. From 2015 to 2017, the average annual growth rate of the size of the PRC credit bond financing was 34.7%. During the same period, the number of the entities within the Everbright Group recorded an average annual growth rate of 17.6%. In particular, following the consolidation of the industrial enterprises such as China Youth Travel Group Limited and China Youth Industrial Development Corporation into the Everbright Group, the number of companies within the Everbright Group that may conduct equity and debt financing has increased. It is expected that from 2019 to 2021, the number of companies within the Everbright Group will increase relatively rapidly. As such, the number of companies within the Everbright Group to whom the Company could provide its investment banking-related services will also increase.

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In addition, the scope of business of the Company’s investment banking-related services has been expanding, including the newlydeveloped innovative financing instruments such as preference shares, panda bonds, green financial bonds, credit asset securitization and exchangeable bonds. In that regard, the types of investment banking services to be provided by the Company to the Everbright Group and its associates will also expand.

The medium and long-term strategic plans and synergistic substrategy formulated by the Everbright Group will be intensively implemented from 2019. According to the relevant plans, the Company will lead the work in respect of the investment banking strategic business within the Everbright Group. In 2017, the Company’s investment banking business conducted with the Everbright Group and its associates as a percentage of the Company’s total investment banking business was 6.9%. The Company estimates that the Company’s investment banking business to be conducted with the Everbright Group and its associates as a percentage of the Company’s total investment banking business will gradually grow from 6.9% in 2017 to 8% in 2018, 10% in 2019, 12% in 2020 and 14% in 2021. It is expected the percentage of intra-group investment banking transactions will double.

(3) In April 2018, the PBOC and other regulatory authorities promulgated the New Regulations on Asset Management, which require all PRC financial institutions to comply with all the requirements therein by 2020. Under this new regulatory landscape, enterprises’ demand for traditional non-standardized financing services (such as through wealth management provided by commercial banks) will shrink substantially, whereas the demand for standardized financing services (such as ABS and bond issuance) will grow substantially. Such trend has emerged in the first half of 2018, during which the ABS issued by the Company by proxy increased substantially to RMB18,968 million, as compared to RMB6,248 million in 2015, RMB11,596 million in 2016 and RMB19,639 million in 2017, representing an annualized growth rate of 77.3%. If the PRC stock market recovers from 2019, and taking into account the factors of innovation in financial industry and acceleration of opening-up, it is expected that the gross issue size of the ABS market will at least maintain a growth rate of 37.1%. It is expected that the growth rate will range from 30% to 35% in 2020 and from 20% to 30% in 2021. The Company estimates that the size of the ABS to be issued by the Company by proxy from 2019 to 2021 will maintain an annual growth rate between 40% and 50%.

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(4) According to Wind Info, as at September 4, 2018, the issuance size of the PRC bond market reached RMB81.18 trillion, representing an increase of 68.9% from RMB48.06 trillion as at the end of 2015. The size of tradable securities on the market increased correspondingly as compared with that of the same period of last year.

Although the PRC stock market was subject to the stricter regulatory policies and external environment with falling equity indexes and shrinking turnover since 2016, according to the statistics published by Wind Info, the number of listed companies in the PRC has grown from 2,827 as at the end of 2015 to 3,547 as at the end of June 2018, representing an annualized growth rate of 10%. During the first half of 2018, the turnover of the stock market shrank substantially and was below normal level. The average daily turnover of the stock market was approximately RMB394.6 billion, accounting for only 36% of that in 2015. It is expected that the average daily turnover of the stock market for the next three financial years will grow to the normal level of approximately RMB500 billion if the PRC stock market recovers from 2019, and taking into account the factors of innovation in financial industry and acceleration of opening-up, representing an increase of approximately 26.7% over that of June 2018. As such, the amount of commission to be generated from the securities brokerage business will grow substantially with the increasingly active trading activities. It is expected that if the overall PRC stock market maintains a relatively fast growth momentum from 2019 to 2021, there will be a substantial growth in both the number and size of tradable instruments with a general growth rate of approximately 20%.

(5) With the business expansion of the associates of the Everbright Group including Everbright Bank, Sun Life Everbright Life Insurance, Everbright Limited and China Everbright International Limited, the Group expects that the amount of commission to be generated from leasing trading seats to these companies and the transaction amounts to be conducted by these companies through the Group will grow substantially. It is expected that from 2019 to 2021, the commission revenue to be generated from the leasing of trading seats to the Everbright Group and its associates will maintain at the average annual growth rate of approximately 40%.

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(6) The Company carries on proxy sales of the banking and wealth management products, insurance and trust products issued by the Everbright Group and its associate through the Company’s securities brokerage branches. As at the end of 2017, the Company had 222 securities brokerage branches in the PRC. It is expected that the Company will set up around 20 to 40 new securities brokerage branches in the PRC in each year from 2018 to 2021. The increase in the number of securities brokerage branches of the Company in the PRC would lead to increased volume of securities and financial products issued by the Everbright Group and its associates to be sold by proxy by the Company in the next three financial years. Taking into account the estimated average annual growth of the number of securities brokerage branches of the Company in the PRC in the next three financial years by approximately 10% to 20%, the average annual growth of the revenue to be generated by the Company from proxy sale of the financial products of the Everbright Group and its associates from 2019 to 2021 is expected to range from 30% to 50%.

Meanwhile, it is expected that the average daily turnover of the stock market for the next three financial years will grow to the normal level of approximately RMB500 billion if the PRC stock market recovers from 2019, and taking into account the factors of innovation in financial industry and acceleration of opening-up, representing an increase of approximately 26.7% over that of June 2018. It is expected that customers would subscribe more financial products when the stock market recovers.

Based on the foregoing factors, it is expected that from 2019 to 2021, the financial products issued by the Everbright Group and its associates and sold by the Company by proxy will reach an average annual growth rate of approximately 30%.

(7) With the continuous expansion of business scale of Everbright Fortune Leasing, it is expected that the Group will engage in more finance leasing business with the Everbright Group and its associates, leading to a substantial growth in revenue to be generated from finance leasing business with the Everbright Group and its associates. The Company expects that the interest income to be generated from the finance leasing business to be provided to the Everbright Group and its associates in the next three financial years will reach RMB10 million to RMB30 million per annum.

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(8) From 2015 to 2017, the aggregate size of assets under management by financial institutions in the PRC recorded an average annual growth rate of 18.4%. It is estimated that the aggregate size of assets under management by financial institutions in the PRC will continue to grow in the next three financial years. It is expected that the aggregate size of assets under management by financial institutions in the PRC will grow by approximately 15% to 20% from 2019 to 2021.

The scope of the Company’s asset management business has been expanding. In addition to securities investment funds, collective asset management schemes and targeted asset management schemes, the Company has newly introduced private equity funds, specialized asset management schemes and futures asset management schemes. Additionally, in light of the expected continuous increase in the number of companies within the Everbright Group, the Company will be able to provide asset management services to more companies within the Everbright Group.

Based on the foregoing factors, it is expected that the size and type of the asset management products managed by the Group and invested by the Everbright Group and its associates will expand in the next three financial years, leading to an increase in the management fees to be generated by the Company from the Everbright Group and its associates. In 2018 and 2019, it is expected that the volume of asset management transactions between the Group and the Everbright Group and its associates will grow up to 100%. The cash inflow will exceed RMB50.0 billion. If the PRC capital market recovers in the future, and taking into account the factors of innovation in financial industry and acceleration of opening-up, the growth rate in 2019 will maintain at 100% to 120% and may slow down to approximately 50% between 2020 and 2021.

The management fees generated from provision of asset management products comprise base fees and performance-based fees. The Company estimates that the base fees to be generated from the Everbright Group and its associates by the Company in the next three financial years will maintain an annual growth rate between 5% and 15%. The performance-based fees generated from provision of asset management products by the Company is closely linked to the general market conditions. Although the stock market in the PRC has been subject to stricter regulations and external environment with falling stock indices and shrinking transaction volumes since 2016, if the PRC stock market recovers from 2019, and taking into account the factors of innovation in financial industry and

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acceleration of opening-up, it is expected that the management fees to be generated by the Company from the Everbright Group and its associates from 2019 to 2021 will be approximately RMB80 million, RMB110 million and RMB140 million, respectively.

(9) In light of the extensive expertise of the Group in providing research, investment advice and investment management, and with the increasing cooperation between the Group and the Everbright Group and its associates, it is expected that the investment advisory and consulting services by the Group to the Everbright Group and its associates will have a substantial growth.

Meanwhile, given the continuous increase in the number of companies within the Everbright Group, the Company will be able to provide advisory and consulting services to more companies within the Everbright Group, leading to an increase in the revenue to be generated therefrom. If the PRC stock market recovers from 2019, and taking into account the factors of innovation in financial industry and acceleration of opening-up, it is estimated that the advisory and consulting fees to be generated by the Group from the Everbright Group and its associates will grow at an average annual rate of 40%.

B.5.3 Basis of determination of the proposed annual caps for the fees to be paid by the Group for provision of the Securities and Financial Services by the Everbright Group and its associates

When estimating the annual caps for the fees to be paid by the Group to the Everbright Group and its associates for their provision of the Securities and Financial Services, the Directors have estimated the annual caps based on the historical transaction amounts in 2016 and 2017 and for the six months ended June 30, 2018. In addition, the Directors have considered, among other things, the following key factors:

(1) The Group primarily sells collective asset management schemes, mutual funds and other financial products through Everbright Bank. In 2017, the number of branches of Everbright Bank in the PRC, being the primary proxy sale channels of the Company’s financial products, increased from 114 to 128, representing a growth rate of 12.3%. The proxy sale capabilities of Everbright Bank has grown correspondingly. Meanwhile, at the end of June 2018, the size of deposits of Everbright Bank reached RMB2.44 trillion, representing an increase of 7% from that at the end of 2017. As such, the size of customers’ deposits that may potentially be used to investment in wealth management products sold at Everbright Bank will increase.

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With the increasingly extensive implementation of the medium and long-term strategic plans and synergistic sub-strategy within the Everbright Group from 2019, it is expected that Everbright Bank will be more incentivized to sell financial products issued by the Group. It is estimated the fees to be paid by the Group to Everbright Bank for its proxy sale of the Group’s financial products will increase by 30% on average per annum in the next three financial years.

The proxy sale commission and fees paid to Everbright Bank for its proxy sale of the Group’s asset management products amounted to over RMB34 million in 2014 and over RMB74 million in 2017, representing an average annual growth rate of approximately 30%. In view of the foregoing reasons, the Company estimates that the proxy sale commission and fees to be paid by the Company to Everbright Bank will increase by 20% to 40% on average per annum in the next three financial years. The Company estimates that the proxy sale commission and fees to be paid by the Company to Everbright Bank for its proxy sale of the Group’s asset management products will be RMB120 million, RMB160 million and RMB190 million in 2019, 2020 and 2021, respectively.

(2) From 2015 to 2017, the number of employees of the Group increased from 7,164 to 9,089, representing an average annual growth rate of 13%. It is estimated that the number of employees will increase at a growth rate of approximately 13% due to business expansion of the Group in the next three financial years, which in turn, will result in the corresponding increase in the insurance expenses to be incurred by the Group. Meanwhile, it is expected that the insurance premium rates will increase along with the increase in general price level and risk-free interest rate, which is expected to grow by 5% per annum on average.

In addition, it is expected that Sun Life Everbright Life Insurance will obtain new business qualifications in the next three financial years, including property insurance and senior management liability insurance, which will expand the scope of cooperation between the Company and Sun Life Everbright Life Insurance in insurance business.

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Based on the foregoing factors, it is expected that the insurance expenses of the Group will record an average annual growth rate of approximately 20% from 2019 to 2021. Additionally, an additional RMB2 million for special insurance products (such as property insurance and senior management liability insurance) will also be incurred in each of the next three financial years.

(3) With the increasing size of the Group’s finance leasing business and Hong Kong subsidiaries’ business, the demand for additional financing of the Group will correspondingly increase. In light of the expected increased fund flow from the Everbright Group and its associates to the Group to meet its increasing funding needs, the corresponding funding cost to be paid by the Group to the Everbright Group and its associates will also increase. From 2015 to 2017, the interest expenses of the Group incurred in relation to connected transactions grew by approximately 94% per annum. In 2018, it is expected that interest expenses will increase by approximately 50% as compared to 2017. Accordingly, the Company estimates that the finance cost to be paid by the Company to the Everbright Group and its associates will maintain at an annualized growth rate of 20% to 50% from 2019 to 2021.
(4) The Company will leverage on the Everbright Group’s strengths in conducting investment banking business in the next three financial years and enter into cooperation with the Everbright Group and its associates through sharing customer resources to provide life-cycle financial services to customers. The Group will share relevant income and pay relevant expenses with the Everbright Group and its associates for clients referral and resources sharing. The Company expects that the costs in connection with the investment banking business conducted by the Company and the Everbright Group and its associates as a percentage of the revenue generated from investment banking business of the Everbright Group and its associates will increase. The highest percentage in the past three years was 4.2%. It is expected that the relevant growth rate will be 20% from 2019 to 2021. As a result, such percentage will reach 5% to 6%.

In determining the proposed annual caps, the Company has taken into account the inflation factor. The National Bureau of Statistics of China uses the annual growth rate of the consumer price index (CPI) to indirectly reflect the extent of inflation instead of directly calculating the inflation rate. Based on the growth rate of the CPI of China of 2015, 2016 and 2017 published by the National Bureau of Statistics of China (being 1.44% in 2015, 2.0% in 2016 and 1.6% in 2017) and industry research reports, it is

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expected that the growth rate of CPI of China for 2019, 2020 and 2021 will be approximately 2.5% to 3%. The Company has taken such estimation into account as an indicator of inflation level when estimating the annual caps for these three financial years.

In determining the proposed annual caps for the next three financial years, the Company also assumes that there would be no adverse changes or interruptions in market conditions, operating and business environment or government policies in the estimated period, which may significantly affect the businesses of the Group and the Everbright Group and its associates during the term of New Everbright Group Financial Products and Services Framework Agreement.

C. Reasons for and Benefit of Renewal of the New Everbright Group Financial Products and Services Framework Agreement

The reasons for and benefits of renewal of the New Everbright Group Financial Products and Services Framework Agreement between the Company and the Everbright Group are as follows:

(1) The Securities and Financial Products Transactions and the Securities and Financial Services under the New Everbright Group Financial Products and Services Framework Agreement are and will be conducted in the ordinary and usual course of business of the Group. Such transactions will continue to be agreed on arm’s length basis with terms that are fair and reasonable to the Company. Due to the historical and future long-term cooperation relationship between the Group and the Everbright Group and its associates, the Directors believe that it would be beneficial to the Group to renew the New Everbright Group Financial Products and Services Framework Agreement with the Everbright Group as the transactions thereunder have facilitated and will continue to facilitate the overall operations and growth of the Group’s business.
(2) These transactions will provide synergies by integrating advantageous resources between the Group and the Everbright Group and its associates, thereby reducing the aggregate operational costs and general expenses which will improve the profitability and to strengthen the leading position of the Company in the securities industry.
(3) Further, such continuing connected transactions will enable the Everbright Group and its associates to develop a deeper understanding in the operation of the Group, which in turn will render them to provide more expedient and efficient services and products to the Group when compared to those services and products provided by independent third parties.

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The Directors (excluding the independent non-executive Directors, whose view on the New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps will be set out in the letter from the Independent Board Committee contained in the circular to be despatched after considering the advice from the Independent Financial Adviser) are of the view that the Securities and Financial Products Transactions and Securities and the Financial Services under the New Everbright Group Financial Products and Services Framework Agreement will be conducted on normal commercial terms, and the terms and conditions therein as well as the proposed annual caps for the continuing connected transactions contemplated thereunder are fair and reasonable, and are in the interests of the Company and its Shareholders as a whole.

D. Implications of the Hong Kong Listing Rules

D.1 Connected persons involved

Connected person Relationship with the Group

Everbright Group : As of the Latest Practicable Date, Everbright Group is directly interested in 1,159,456,183 A Shares of the Company, representing 25.15% of the total issued share capital of the Company; and is indirectly interested in 982,250,000 A Shares of the Company through Everbright Limited, representing 21.30% of the total issued share capital of the Company. Accordingly, the Everbright Group is the controlling shareholder of the Company, and the Everbright Group and its associates are connected persons of the Company.

Based on the above, the Everbright Group and its associates are connected persons of the Company, and the transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

D.2 Implications of the New Everbright Group Financial Products and Services Framework Agreement under the Hong Kong Listing Rules

As the highest of the applicable percentage ratio in respect of (1) the proposed annual caps for the continuing Securities and Financial Products Transactions; and (2) the proposed annual caps for the continuing Securities and Financial Services under the New Everbright Group Financial Products and Services Framework Agreement for the three years ending December 31, 2021 exceeds 5% calculated

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according to the Hong Kong Listing Rules, such continuing connected transactions are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

The Company has again applied to the Hong Kong Stock Exchange for a waiver from strict compliance with setting the Maximum Daily Deposit Balance Limit as required under Rule 14A.53 of the Hong Kong Listing Rules. The Company was granted a waiver from the Hong Kong Stock Exchange on September 14, 2018 which waives the Company’s obligation to set the Maximum Daily Deposit Balance Limit. For reasons for the application for such waiver by the Company, please refer to paragraph A.6 above in this circular and the announcement of the Company dated September 17, 2018.

(1) Mr. Xue Feng, the Chairman and an executive Director of the Company; (2) Mr. Ju Hao, a non-executive Director of the Company, being a director of the Everbright Group; (3) Mr. Yan Jun, a non-executive Director of the Company, being the executive deputy director and officer of deepening reform of the Central Leading Group for Comprehensive Reforms of Everbright Group; (4) Mr. Song Bingfang, a non-executive Director of the Company, being the deputy director of the office of the Board of Directors of Everbright Group; (5) Mr. Yin Lianchen, a non-executive Director of the Company, being an executive director, chief investment officer and a member of the management decision committee, executive committee and strategy committee of Everbright Limited, a subsidiary of the Everbright Group; and (6) Mr. Chan Ming Kin, a non-executive Director of the Company, being the chief legal advisor, company secretary and a member of the Investment Decision Committee of Everbright Limited, are deemed to have a material interest in all of the above continuing connected transactions to be contemplated between the Group and the Everbright Group and have abstained from voting with respect to the relevant resolutions at the meeting of the Board held at August 28, 2018, (the “ Board Meeting ”) at which the New Everbright Group Financial Products and Services Framework Agreement and the annual caps for the continuing connected transactions contemplated thereunder were considered and approved by the Directors. Save as disclosed above, no other Directors have a material interest in such transactions and therefore did not abstain from voting with respect to the aforesaid resolution at the Board Meeting.

E. General Information

E.1 Information about the Everbright Group

Everbright Group is a state-owned enterprise incorporated under the PRC laws on November 12, 1990. On December 8, 2014, the Everbright Group was converted into a joint stock company and renamed as “China Everbright Group Ltd.”. The Everbright Group, which owns a number of listed companies domestically and

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LETTER FROM THE BOARD

abroad, has become a large-scale financial holding group across the domestic territory and abroad. The Everbright Group through its subsidiaries, engages in financial businesses including banking, securities, insurance, asset management, trust, futures, financial leasing as well as industrial businesses including environmental protection, water treatment, garbage incineration power generation, new energy, culture and tourism, pharmaceutical and healthcare. The Everbright Group is held 44.33% by the Ministry of Finance of the People’s Republic of China and 55.67% by Central Huijin Investment Ltd (a wholly-owned subsidiary of China Investment Corporation, which is wholly-owned by the State Council of the People’s Republic of China).

In 2015, the Everbright Group was ranked among Fortune Global 500 Firms for the first time, taking the 420[th] place. In 2018, the ranking was up by 98 places to the 322[nd] place.

E.2 Information about the Group

The Group is a leading full-service securities group in China with strong innovation capabilities and an integrated onshore and offshore business platform. As a core financial services platform of the Everbright Group, the Group benefits from synergies within the group and from the “Everbright” brand recognition. The Group offers a full range of financial products and services to a large and diversified client base that includes enterprises, financial institutions, governments and individuals. The Group’s principal business lines comprise brokerage and wealth management business, credit business, institutional securities business, investment management business, overseas business and other businesses (including Internet financial business and PPP business).

2. To consider and approve the Resolution Regarding the Proposed Amendments to the Rules Governing the Management of Related Party Transactions

On June 19, 2018, the CSRC Shanghai Securities Regulatory Bureau issued the Circular on Matters Concerning Further Strengthening the Regulation of the Related Party Transactions of Securities Companies (Hu Zheng Jian Ji Gou Zi [2018] No. 198) (the “ Circular ”), pursuant to which the securities companies are required to improve the rules governing the management of related party transactions. The rules governing the management of related party transactions shall include, but not limited to, the identification, promotion, pricing, decision-making, disclosure, audit and accountability, etc. of the related party transactions. According to the relevant requirements of the Circular, the Company proposes to amend the Rules Governing the Management of Related Party Transactions of Everbright Securities Company Limited (the “ Rules Governing the Management of Related Party Transactions ”). A comparison table of the key amended terms is set out in Appendix I to this circular for reference.

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LETTER FROM THE BOARD

The Board has convened the Board Meeting on August 28, 2018, at which the Board has considered and approved the proposed amendments to the Rules Governing the Management of Related Party Transactions. Pursuant to the relevant requirements of the Rules Governing the Management of Related Party Transactions, such rules are subject to the amendment and interpretation by the general meeting of the Company. Accordingly, the Board is now proposing to the extraordinary general meeting for the consideration and approval of the proposed amendments to the Rules Governing the Management of Related Party Transactions by the Shareholders.

3. To consider and approve the Resolution Regarding the Proposed Amendments to the Rules Governing the Management and Use of Funds Raised

Pursuant to the relevant requirements of the regulatory authorities in respect of the bond issuers, in order to improve the debt financing part in the Rules Governing the Management and Use of Funds Raised of Everbright Securities Company Limited (the “ Rules Governing the Management and Use of Funds Raised ”), the Company proposes to amend the existing Rules Governing the Management and Use of Funds Raised (revised in 2016) and to add the bond related contents to the existing rules pursuant to the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Listing Rules of the Shanghai Stock Exchange, the Administrative Measures for the Issuance of Securities by Listed Companies, the Administrative Measures for the Issuance and Trading of Corporate Bonds, the Guidelines for the Supervision and Administration on Listed Companies No. 2 – Supervision and Administration Requirements for Listed Companies on the Management and Use of Funds Raised, the Measures for the Management of Raised Funds of Listed Companies on the Shanghai Stock Exchange (revised in 2013), the Hong Kong Listing Rules. A comparison table of the key amended terms is set out in Appendix II to this circular for reference.

The Board has considered and approved the proposed amendments to the Rules Governing the Management and Use of Funds Raised at the Board Meeting. Pursuant to the relevant requirements of the Rules Governing the Management and Use of Funds Raised, the amendments to these rules are subject to the consideration and approval at the general meeting of the Company. Accordingly, the Board is now proposing to the extraordinary general meeting for the consideration and approval of the proposed amendments to the Rules Governing the Management and Use of Funds Raised by the Shareholders.

Special Resolution:

1. To consider and approve the Resolution Regarding the General Mandate to Issue Onshore Debt Financing Instruments of the Company

Given that the actual amount of the respective debt financing instruments issued according to the Resolution on the General Mandate to Issue Onshore Debt Financing Instruments by the Company (《關於對公司發行境內債務融資工具進行一般性授權的議案》), which was considered and approved at the 2017 second extraordinary general meeting of the

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LETTER FROM THE BOARD

Company, is close to the authorised limit, in order to satisfy the needs of the continuing operation and the sustaining liquidity of the Company, ensure smooth carrying out of the relevant financing activities, adjust the debt structure and lower the financing costs, the Company proposes to make another application for the general mandate for the issuance of the Company’s onshore debt financing instruments by way of an one-off or multiple issuances or multi-tranche issuances of RMB onshore debt financing instruments (the “ Company Onshore Debt Financing Instruments ”), including but not limited to RMB corporate bonds and other RMB debt financing instruments which may be issued by the Company as approved by or filed with the CSRC and other relevant authorities in accordance with the relevant regulations. For details of the general mandate for the issuance of the Company Onshore Debt Financing Instruments, please refer to Appendix III to this circular.

The Board has considered and approved the resolution regarding the general mandate to issue onshore debt financing instruments of the Company at the Board Meeting. The Board is now proposing to the extraordinary general meeting for the consideration and approval of the resolution regarding the general mandate to issue onshore debt financing instruments of the Company by the Shareholders.

II. THE EGM

The EGM will be held at 2:30 p.m. on Tuesday, December 18, 2018 at Jing’an International Plaza, No. 1508, Xinzha Road, Jing’an District, Shanghai, the PRC, to consider and, if thought fit, approve the aforesaid resolutions. The notice of the EGM is set out on pages 79 to 81 of this circular.

In accordance with the Hong Kong Listing Rules, the Everbright Group and its associates will abstain from voting on the resolution to be proposed at the EGM in relation to the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto, and cannot be entrusted by other shareholders to vote. As of the Latest Practicable Date, the Everbright Group and its associates, directly and indirectly, hold 2,141,706,183 A Shares of the Company (representing approximately 46.45% of the total issued share capital of the Company) with voting right.

To the best of the knowledge of the Directors and having made all reasonable enquiries, (1) other than the Everbright Group and its associates, no other Shareholder has a material interest in the continuing connected transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement proposed to be renewed and as such, is required to abstain from voting on the Resolution Regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto to be proposed at the EGM; (2) no Shareholders have a material interest in the Resolution Regarding the Proposed Amendments to the Rules Governing the Management of Related Party Transactions, the Resolution Regarding the Proposed Amendments to the Rules

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LETTER FROM THE BOARD

Governing the Management and Use of Funds Raised and the Resolution Regarding the General Mandate to Issue Onshore Debt Financing Instruments of the Company, and therefore no Shareholders are required to abstain from voting on these resolutions to be proposed at the EGM.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, you are advised to read the notice of the EGM and to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible. For H Shareholders, the form of proxy or any other authorization documents should be returned to the Company’s H share registrar, Computershare Hong Kong Investor Services Limited, whereas A Shareholders should return the form of proxy to the Company’s Board office, and in any event in person or by post no later than 24 hours before the time designated for convening the EGM (i.e. 2:30 p.m. on Monday, December 17, 2018) or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending in person and voting at the EGM or at any adjourned meeting.

If you intend to attend the EGM in person or by proxy, you are required to return the completed and signed reply slip to the Company’s H share registrar, Computershare Hong Kong Investor Services Limited (for H Shareholders), or to the Company’s Board office (for A Shareholders), on or before Wednesday, November 28, 2018 in person, by mail or by fax.

The address of the Company’s Board office is No. 1508 Xinzha Road, Jing’an District, Shanghai, the PRC (Postcode: 200040, Telephone: (86) 21 2216 9914, Fax: (86) 21 2216 9964). Computershare Hong Kong Investor Services Limited, the Company’s H share registrar, is located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (Telephone: (852) 2862 8555).

III. VOTING BY POLL

(1) Pursuant to Rule 13.39(4) of the Hong Kong Listing Rules, any vote by Shareholders at a general meeting must be taken by poll. Therefore, the resolutions to be proposed at the EGM will be voted by poll. Results of the poll voting will be posted on the website of the Company at www.ebscn.com and on the HKExnews website of Hong Kong Exchanges and Clearing Limited at www.hkexnews.hk upon the conclusion of the EGM.
(2) The Everbright Group and its associates will abstain from voting on the resolution regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto, and shall not accept appointment from other Shareholders as proxies in voting on the aforesaid resolution.

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LETTER FROM THE BOARD

(3) To the best knowledge of the Company, having made all reasonable enquiries, as at the Latest Practicable Date:
(a) there was no voting trust or other agreement or arrangement or understanding entered into by or binding upon the Everbright Group or its associates in respect of their shares in the Company;
(b) none of the group companies of the Everbright Group were subject to any obligation or entitlement, whereby they had or might have temporarily or permanently passed control over the exercise of the voting right in respect of their shares in the Company to a third party, whether generally or on a case-by-case basis; and
(c) it was not expected that there would be any discrepancy between the beneficial shareholding interests of the Everbright Group and its associates holding Shares and the number of shares in the Company in respect of which they would control or would be entitled to exercise control over the voting right at the EGM.

Save as mentioned above, to the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no other Shareholder has a material interest in any of the above resolutions and has to abstain from voting at the EGM on the above resolutions.

IV. RECOMMENDATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out in this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the resolution regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto; and (ii) the letter from Gram Capital set out in this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the resolution regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto, as well as the principal factors and reasons taken into account by Gram Capital in reaching its advice.

The Directors (including the independent non-executive Directors) are of the view that the Securities and Financial Products Transactions and the Securities and Financial Services under the New Everbright Group Financial Products and Services Framework Agreement proposed to be renewed will be conducted on normal commercial terms, and the terms and conditions therein as well as the proposed annual caps for the continuing connected transactions contemplated thereunder are fair and reasonable, and are in the interests of the Company and its Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend you to vote in favour of the resolution

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LETTER FROM THE BOARD

regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto to be proposed at the EGM.

The Directors (including the independent non-executive Directors) also consider that the other resolutions to be proposed at the EGM are in the interests of the Company and its Shareholders as a whole and therefore recommend you to vote in favour of the other resolutions above to be proposed at the EGM as well.

V. RESPONSIBILITY STATEMENT

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

VI. ADDITIONAL INFORMATION

Your attention is drawn to (1) the letter from the Independent Board Committee set out on pages 57 and 58 of this circular, which contains its recommendation on the resolution regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto; and (2) the letter from Gram Capital to the Independent Board Committee and Independent Shareholders set out on pages 59 to 78 of this circular, which contains its recommendation on the resolution regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto.

Independent Shareholders are advised to carefully read the above letters prior to deciding as to how to vote on the resolution approving, inter alia , the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto.

By order of the Board Everbright Securities Company Limited Xue Feng Chairman

Shanghai, the PRC October 31, 2018

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Everbright Securities Company Limited 光大證券股份有限公司

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

(Stock Code: 6178)

October 31, 2018

To the Independent Shareholders

Dear Sir or Madam,

Connected Transaction – New Everbright Group Financial Products and Services Framework Agreement

We refer to the circular of the Company dated October 31, 2018 (the “ Circular ”) of which this letter forms a part. Unless the context requires otherwise, terms defined in the Circular shall have the same meanings when used herein.

We have been appointed by the Board as the Independent Board Committee to consider and advise the Independent Shareholders on whether, in our opinion, the terms of the New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps for the continuing connected transactions contemplated thereunder (details of which are set out in the Letter from the Board) are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Gram Capital has been appointed by the Board as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders on the fairness and reasonableness of the terms and conditions of the New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps for the continuing connected transactions contemplated thereunder. Details of the advice from Gram Capital, together with the principal factors taken into consideration in arriving at such advice, are set out in its letter on pages 59 to 78 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 5 to 56 of the Circular and the additional information set out in the Appendix IV.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms and conditions of the New Everbright Group Financial Products and Services Framework Agreement and the proposed annual caps for the continuing connected transactions contemplated thereunder, the interests of the Independent Shareholders and the advice of Gram Capital, we are of the opinion that the Securities and Financial Products Transactions as well as the Securities and Financial Services under the New Everbright Group Financial Products and Services Framework Agreement will be conducted in the ordinary and usual course of business of the Group and on normal commercial terms, and the terms and conditions therein as well as the proposed annual caps for the continuing connected transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM so as to approve the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto.

Yours faithfully,

For and on behalf of the Independent Board Committee of Everbright Securities Company Limited Mr. Xu Jingchang, Mr. Xiong Yan, Mr. Li Zheping and Mr. Au Sing Kun Independent Non-executive Directors

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LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the New Everbright Group Financial Products and Services Framework Agreement and the transactions contemplated thereunder for the purpose of inclusion in this circular.

==> picture [168 x 33] intentionally omitted <==

Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

31 October 2018

To: The independent board committee and the independent shareholders of Everbright Securities Company Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the New Everbright Group Financial Products and Services Framework Agreement, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 31 October 2018 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

Pursuant to the 2016 Everbright Group Financial Products and Services Framework Agreement, the agreement shall be valid until 31 December 2018. Given the expansion of the business qualifications and business scope of the Group and the expansion of the type and scope of business engaged by the Everbright Group’s subsidiaries in recent years and taking into account the expiry of the 2016 Everbright Group Financial Products and Services Framework Agreement on 31 December 2018, the Company proposes to renew the securities and financial products and services framework agreement between the Company and the Everbright Group on the basis of the 2016 Everbright Group Financial Products and Services Framework Agreement for a term of three years commencing from 1 January 2019 to 31 December 2021. The New Everbright Group Financial Products and Services Framework Agreement was entered into between the Company and Everbright Group on 15 October 2018.

With reference to the Board Letter, the transactions contemplated under New Everbright Group Financial Products and Services Framework Agreement constitute continuing connected transactions of the Group under Chapter 14A of the Hong Kong Listing Rules and are subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

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LETTER FROM GRAM CAPITAL

The Independent Board Committee comprising Mr. Xu Jingchang, Mr. Xiong Yan, Mr. Li Zheping, and Mr. Au Sing Kun (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the New Everbright Group Financial Products and Services Framework Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the transactions contemplated under New Everbright Group Financial Products and Services Framework Agreement are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve the New Everbright Group Financial Products and Services Framework Agreement and the transactions contemplated thereunder at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there are no undisclosed private agreements/arrangements or implied understanding with anyone concerning the New Everbright Group Financial Products and Services Framework Agreement. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Hong Kong Listing Rules.

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement as contained in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

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LETTER FROM GRAM CAPITAL

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, the Everbright Group or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the entering into of the New Everbright Group Financial Products and Services Framework Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the New Everbright Group Financial Products and Services Framework Agreement, we have taken into consideration the following principal factors and reasons:

Information on the Group

With reference to the Board Letter, the Group is a leading full-service securities group in China with strong innovation capabilities and an integrated onshore and offshore business platform. As a core financial services platform of the Everbright Group, the Group benefits from synergies within the group and from the “Everbright” brand recognition. The Group offers a full range of financial products and services to a large and diversified client base that includes enterprises, financial institutions, governments and individuals. The Group’s principal business lines comprise brokerage and wealth management business, credit business, institutional securities business, investment management business, overseas business and other businesses (including internet financial business and PPP business).

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LETTER FROM GRAM CAPITAL

Set out below are the consolidated financial information of the Company for the six months ended 30 June 2018 and the two years ended 31 December 2017 as extracted from the interim report of the Company for the six months ended 30 June 2018 and annual report of the Company for the year ended 31 December 2017 (the “ 2017 Annual Report ”):

	For the	For the	For the
	six months	year ended	year ended
	ended 30 June	31 December	31 December	Change from
	2018	2017	2016	2016 to 2017
	RMB’000	RMB’000	RMB’000		%
Revenue	6,715,996	14,338,438	13,198,118		8.64
– Fee and commission
income	2,783,586	6,714,916	7,358,470		(8.75)
– Interest income	2,661,849	5,128,883	4,867,387		5.37
– Net investment gains	1,270,561	2,494,639	972,261		156.58
Profit for the
period/year	1,040,689	3,126,999	3,076,690		1.64

As illustrated in the above table, the Company recorded an increase of approximately 8.64% in revenue for the year ended 31 December 2017 (“ FY2017 ”) as compared to that for the year ended 31 December 2016 (“ FY2016 ”). The Group also recorded a slight increase in profit during FY2017.

Information on the Everbright Group

With reference to the Board Letter, Everbright Group is a state-owned enterprise incorporated under the PRC laws on 12 November 1990. On 8 December 2014, Everbright Group was converted into a joint stock company and renamed as “China Everbright Group Ltd.”. Everbright Group, which owns a number of listed companies domestically and abroad, has become a large-scale financial holding group across the domestic territory and abroad. Everbright Group through its subsidiaries, engages in financial businesses including banking, securities, insurance, asset management, trust, futures, financial leasing as well as industrial businesses including environmental protection, water treatment, garbage incineration power generation, new energy, culture and tourism, pharmaceuticals and healthcare.

In 2015, Everbright Group was ranked among Fortune Global 500 Firms for the first time, taking the 420th place. In 2018, the ranking was up by 98 places to the 322nd place.

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LETTER FROM GRAM CAPITAL

Reasons for and benefit of entering into of the New Everbright Group Financial Products and Services Framework Agreement

With reference to the Board Letter, the reasons for and benefits of renewal of the New Everbright Group Financial Products and Services Framework Agreement between the Company and Everbright Group are as follows:

(i) The Securities and Financial Products Transactions and Securities and Financial Services Transactions under the New Everbright Group Financial Products and Services Framework Agreement are and will be conducted in the ordinary and usual course of business of the Group. Such transactions will continue to be agreed on arm’s length basis with terms that are fair and reasonable to the Company. Due to the historical and future long-term cooperation relationship between the Group and Everbright Group and its associates, the Directors believe that it would be beneficial to the Group to renew the New Everbright Group Financial Products and Services Framework Agreement with Everbright Group as the transactions thereunder have facilitated and will continue to facilitate the overall business operations and growth of the Group’s business.
(ii) These transactions will provide synergies by integrating advantageous resources between the Group and Everbright Group and its associates, thereby reducing the aggregate operational costs and general expenses which will improve the profitability and to strengthen leading position of the Company in the securities industry.
(iii) Further, such continuing connected transactions will enable Everbright Group and its associates to develop a deeper understanding in the operations of the Group, which in turn will render them to provide more expedient and efficient services and product to the Group when compared to those services and products provided by independent third parties.

As confirmed by the Directors, as the transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement will be entered into in the ordinary and usual course of business of the Group and on a frequent and regular basis, it would be (i) impracticable to negotiate for numerous agreements with Everbright Group; and (ii) costly and impractical to make regular disclosure of each of the relevant transactions and obtain the prior approval from the Independent Shareholders as required by the Hong Kong Listing Rules, if necessary.

In light of the above factors, we concur with the Directors that the entering into of the New Everbright Group Financial Products and Services Framework Agreement is in the interests of the Company and the Shareholders as a whole and transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement are conducted in the ordinary and usual course of business of the Group.

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LETTER FROM GRAM CAPITAL

Principal terms of the New Everbright Group Financial Products and Services Framework Agreement

Date: 15 October 2018 Parties: The Company and Everbright Group Term: For the three years from three years from 1 January 2019 to 31 December 2021 Subject matters: The Company proposes to make certain changes to the scope of the securities and financial services/products. Details of the changes to the aforesaid scope were set out under the sections headed “A.1.1 Scope of the Securities and Financial Products Transactions” and “B.1 Scope of the Securities and Financial Services” of the Board Letter.

A. SECURITIES AND FINANCIAL PRODUCTS TRANSACTIONS

Pricing basis for Securities and Financial Products Transactions

The Securities and Financial Products Transactions are conducted through the PRC inter-bank bond market and the PRC exchange bond market, exchanges (including stock exchanges, futures exchanges, Shanghai Gold Exchange and China Foreign Exchange Trade System) and the open-ended fund market. Such transactions are and will continue to be conducted at the prevailing market prices in the ordinary and usual course of the Group’s business and with high frequency. The pricing mechanisms of the Securities and Financial Products Transactions depend on the particular trading venue on which the relevant transaction is carried on. Details of the pricing mechanisms are set out under the section headed “A.2 Pricing Basis of the Securities and Financial Products Transactions” of the Board Letter.

Pricing approval and supervision

To ensure the terms of the securities and financial products transactions are on normal commercial terms or on terms no less favourable than terms applicable to independent third parties, the Group has implemented internal approval and monitoring procedures. Details of the procedures are set out under the section headed “A.3 Pricing Approval and Supervision of the Securities and Financial Products Transactions” of the Board Letter. We obtained and reviewed the documents showing the Group’s internal approval and monitoring procedures for Securities and Financial Products Transactions.

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LETTER FROM GRAM CAPITAL

For our due diligence purpose, we discussed with the Directors regarding internal guidelines and policies for conduct of different types of securities and financial products as well as the internal procedures and systems for approval and supervision such transactions and lending and borrowings.

We noted from the documents that, among other things, (i) the Group established its internal guidelines and policies for conduct of different types of securities and financial products and internal procedures and systems for approval and supervision such transactions; (ii) the Group would conduct pricing quotations/offering procedures from/to at least two independent third parties for contemporaneous transactions; and (iii) the Group established the Related Party/Connected Transactions Working Group in 2016, which comprises staff from various department and are mainly responsible for managing the Group’s related party/connected transactions on a daily basis. As such, we consider that the internal control procedures are sufficient for the Company to monitor the Securities and Financial Products Transactions and the effective implementation of the procedures would help to ensure fair pricing of the transactions contemplated under the Securities and Financial Products Transactions according to the pricing policies.

In addition, we further discussed with senior management, the Related Party/Connected Transactions Working Group’s members (who were from different departments), Headquarters’ staff (金融市場總部) of the Company and staff of Shanghai Everbright Securities Asset Management Co., Ltd. and understood that the aforesaid parties will comply with relevant implemented internal approval and monitoring procedure when conducting the Securities and Financial Products Transactions.

In light of the above and that the Securities and Financial Products Transactions (i) will be mainly conducted through the PRC inter-bank bond market and the PRC exchange bond market, stock exchanges (including stock exchanges, futures exchanges, Shanghai Gold Exchange and China Foreign Exchange Trade System) and the open-ended fund market; and (ii) are highly market-sensitive and the Group generally could not control on the counterparties of transactions due to the majority of the Securities and Financial Products Transactions are conducted through intermediate system(s), we are of the view that the terms of the Securities and Financial Products Transactions under New Everbright Group Financial Products and Services Framework Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

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The proposed annual caps

Set out below are (i) the actual historical transaction amount of the Securities and Financial Products Transactions for the two years ended 31 December 2017 and six months ended 30 June 2018 with existing annual caps; and (ii) the proposed annual caps for the three years ending 31 December 2021 (the “ Financial Products Annual Cap(s) ”):

	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2016	2017	2018
Securities and Financial
Products Transactions –
In (Note 1)	RMB’million	RMB’million	RMB’million
Actual historical amount	60,300	111,725	43,900_(Note 3)_
Existing annual caps	133,250.0	160,650.0	192,750.0
Utilisation rate	45.3%	69.5%	N/A
Securities and Financial
Products Transactions –
Out (Note 2)	RMB’million	RMB’million	RMB’million
Actual historical amount	97,500	106,400	23,100_(Note 3)_
Existing annual caps	169,700.0	204,650.0	245,750.0
Utilisation rate	57.5%	52.0%	N/A
	For the	For the	For the
	year ending	year ending	year ending
	31 December	31 December	31 December
	2019	2020	2021
Securities and Financial
Products Transactions	RMB’million	RMB’million	RMB’million
In (Note 1)	230,000	280,000	340,000
Out (Note 2)	230,000	280,000	340,000

Notes:

(1) “In” means the total cash inflow to the Group arising from sale of fixed income products and equity related products, interest to be received from derivative products associated with fixed income products, and through borrowing/repurchase from financing transactions.
(2) “Out” means the total cash outflow from the Group arising from purchase of fixed income products and equity related products, interest to be paid for derivative products associated with fixed income products, and through lending/reverse repurchase from financing transactions.
(3) The figures were for the six months ended 30 June 2018.

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LETTER FROM GRAM CAPITAL

Due to the nature of the Securities and Financial Products Transactions, the Company considers that it is more practicable to set annual caps for the total inflow and outflow of the securities and financial products transactions instead. In arriving at the above caps, the Directors have considered the historical figures for similar transactions and have taken into account various factors, details of which are set out under the section headed “A.5 Proposed Annual Caps of the Securities and Financial Products Transactions for the Three Financial Years Ending December 31, 2021” of the Board Letter.

According to the above table, the utilisation rates of existing Financial Products Annual Caps for the two years ended 31 December 2017 for both cash inflow and cash outflow were not at high levels. As advised by the Directors, cash inflows and outflows regarding the sale and purchase of Securities and Financial Products are highly depending on the market sentiment and conditions.

Despite that the abovementioned utilisation rates were not at high levels, the Financial Products Annual Cap for the year ending 31 December 2019 for cash inflow represented an increase of approximately 106% as compared to the historical amount of that for the year ended 31 December 2017; while the Financial Products Annual Cap for the year ending 31 December 2019 for cash outflow represented an increase of approximately 116% as compared to the historical amount of that for the year ended 31 December 2017.

We understood from the Directors, as the Securities and Financial Products Transactions are highly market-sensitive and the Group generally could not control on the counterparties of transactions due to the majority of the securities and financial products transactions are conducted through intermediate system(s). As such, the Financial Products Annual Caps were determined with reference to the historical data but mainly determined after considering (i) increasing cooperation between the Group and Everbright Group and its associates; (ii) expected increase and expansion business of the Group and Everbright Group; and (iii) launching of new types of securities and financial products; nature of the Securities and Financial Products Transactions and the avoidance of restriction on the Group’s future business opportunities and growth.

To assess the fairness and reasonableness of the Financial Products Annual Caps for the year ending 31 December 2019, in particular the substantial increase as compared to those for FY2017, we conducted following analyses:

According to the statistics of the People’s Bank of China, the scale of existing social financing in the PRC substantially increased from RMB138.14 trillion as at the end of 2015 to RMB174.71 trillion as at the end of 2017, representing a growth of approximately 26%. With reference to the information published by the Asset Management Association of China (中國證券投資基金業協會), the total value of the assets under management by financial institutions in the PRC also experienced a substantial growth, increasing from approximately RMB38.2 trillion as at 31 December 2015 to approximately RMB53.6 trillion as at 31 December 2017, representing a growth of approximately 40%. Since 2015, various innovative debt financing products in the PRC have constantly been launched and the New Third Board and OTC

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derivatives market also recorded considerable growth, leading to the emergence of green financial bonds, bonds with attached warrants, perpetual bonds, preference shares, structured notes, OTC options and many trading varieties and the size of business grows continuously.

In April 2018, the People’s Bank of China, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and State Administration of Foreign Exchange jointly promulgated the Guidance Opinions on Regulating the Asset Management Business of Financial Institutions. Under the new regulatory landscape, the trend of debt financing “transforming non-standard asset to standard asset” in China which strongly seized the opportunities arising from the historical development of asset securitization business. As at the end of June 2018, the size of the Company’s securitization asset management products increased substantially from the end of 2015. During the first half of 2018, the asset backed securities issued by the Company by proxy also increased considerably as compared to those in 2015.

With reference to the Board Letter, since 2015, the number of companies within the Everbright Group has grown from 665 to 920, representing a growth of approximately 38%. Everbright Group, controlling a number of listed companies domestically and abroad, has become a large-scale financial holding group across China and overseas engaging in financial businesses including banking, securities, insurance, asset management, trust, futures, financial leasing as well as industrial businesses such as environmental protection, water treatment, garbage incineration power generation, new energy, culture and tourism, pharmaceutical and healthcare.

For our due diligence purpose, we further obtained a list from the Company, showing the breakdown of Financial Products Annual Caps for each of the three years ending 31 December 2021. We understood from the Company that relevant subsidiaries/departments of the Company provided an estimation of the forecasted sale and purchase amount of Securities and Financial Products for the three years ending 31 December 2021. Such forecasted amounts were approved by management of the relevant subsidiaries before submitting to the Company for consolidation and review. The Planning and Finance Department of the Company was responsible for the consolidation and review.

We noted from the list that transactions expected to be recorded by Headquarters (金融市場總部) of the Company and Shanghai Everbright Securities Asset Management Co., Ltd. (being a wholly-owned subsidiary of the Company) (the “ Transaction Amounts ”) represented over 90% of the Financial Products Annual Caps for each of the three years ending 31 December 2021. We enquired into the Directors in this regard and noted that most of the transactions under Securities and Financial Products Transactions handled by the aforesaid Company’s department/subsidiary. Based on the historical transaction amounts of Securities and Financial Products Transactions for the two years ended 31 December 2017 and six months ended 30 June 2018, most of transaction amounts were handled and recorded by the aforesaid Company’s department/subsidiary.

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Furthermore, we noted from the list that the expected Transaction Amounts (inflow) for the year ending 31 December 2019 represented an increase of approximately 90% as compared to the Transaction Amounts (inflow) for FY2017. Such increase was determined after considering (i) the possible effect from New Regulations on Asset Management; and (ii) annualized growth rate of the Company’s asset-backed securities issued from 2015 to the first half of 2018 of 77.3%.

We further discussed with relevant personnel (the “ Relevant Personnel ”) of Planning and Finance Department, who had over 20 year-experience in the industry, regarding consolidation and review of the forecasted sale and purchase amounts of Securities and Financial Products for the three years ending 31 December 2021. As mentioned above, the Planning and Finance Department of the Company was responsible for the consolidation and review. The Relevant Personnel, being the head of Planning and Finance and with extensive experience in this industry, is familiar with the Group’s operation and this industry. As such, we consider the discussion with the Relevant Personnel would allow us to have a better understanding in respect of the bases of the Financial Products Annual Caps for the three years ending 31 December 2021.

We understood from the Relevant Personnel (i) the estimated sale and purchase amount and the bases and assumptions for determining the Financial Products Annual Caps; (ii) that it would be in the interests of the Group for the Financial Products Annual Caps to be as accommodating to the Group as possible, provided that the conduct of those transactions would be strictly followed relevant internal control procedure to ensure the fair pricing; (iii) the Group would have flexibility in the sale and purchase of Securities and Financial Products if the Financial Products Annual Caps are tailored to the future business and market growth; (iv) if the Financial Products Annual Caps are set without considering sufficient room for future business and market growth and the Company has to revise the annual caps upward at a general meeting before conducting additional transactions; and (v) based on the product cycle and historical statistics, it is expected that the asset management product inflow and outflow will eventually become the same in general, the Company’s business may be restricted and it will have to incur additional administrative costs and resources to obtain approval from the Independent Shareholders. During our discussion, we have not identified any major factor which caused us to doubt the reasonableness of the estimation of the sale and purchase amount of the Securities and Financial Products for the three years ending 31 December 2021.

As mentioned above, as the Securities and Financial Products Transactions are highly market-sensitive and the Group generally could not control on the counterparties of transactions due to the majority of the securities and financial products transactions are conducted through intermediate system(s). As such, it is possible that the majority of transactions under the Securities and Financial Products Transactions are conducted between the Group and Everbright Group. Accordingly, we consider it would be acceptable that the Financial Products Annual Caps for the three years ending 31 December 2021 are close to the historical cash inflow and outflow regarding securities and financial products transactions among the Group and all clients (including Everbright Group).

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Upon our request, the Company provided historical cash inflow and outflow regarding securities and financial products transactions among the Group and all clients (including Everbright Group). We noted that (i) historical cash inflow for FY2017 was substantially larger than Financial Products Annual Caps (in) for each of the three years ending 31 December 2021; (ii) historical cash outflow for FY2017 was larger than each of the Financial Products Annual Caps (out) for each of the two years ending 31 December 2020; and (iii) the Financial Products Annual Cap (out) for the year ending 31 December 2021 was close to the aforesaid cash outflow for FY2017. We further understood from the Directors that after the sale of fixed income products and equity related products or borrowing from financing transactions, the Group may also purchase such fixed income products and equity related products or receive payment, the cash inflow may turn to become cash outflow, as such the Financial Products Annual Caps which were set at the same amount for cash inflow and cash outflow for the same year.

In light of the above factors, including (i) current status of PRC capital market; (ii) increase in members of Everbright Group since 2015; (iii) our findings on the list which shows the breakdown of Financial Products Annual Caps for each of the three years ending 31 December 2021; (iv) our discussion with Relevant Personnel who had over 20 year-experience in the industry; and (v) our findings on historical cash inflow and outflow regarding securities and financial products transactions among the Group and all clients (including Everbright Group), we concur with the Directors that the Financial Products Annual Caps for the three years ending 31 December 2021 to be fair and reasonable.

Shareholders should note that as the Financial Products Annual Caps for the three years ending 31 December 2021 are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2021, and they do not represent forecasts of revenue/income/cost to be incurred from the Securities and Financial Products Transactions. Consequently, we express no opinion as to how closely the actual revenue/income/cost to be incurred from the Securities and Financial Products Transactions will correspond with the Financial Products Annual Caps.

B. SECURITIES AND FINANCIAL SERVICES TRANSACTIONS

Pricing basis for Securities and Financial Services Transactions

With reference to the Board Letter, the Group primarily charge service fees, commissions and other fees for the Securities and Financial Services to be provided by the Group to Everbright Group and its associates.

The pricing principles for the Securities and Financial Services to be provided by the Group to Everbright Group and its associates under the New Everbright Group Financial Products and Services Framework Agreement are set out under the section headed “B.2.1 Pricing basis of the Securities and Financial Services to be provided by the Group to the Everbright Group and its associates”.

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With reference to Rule 14A.56 of the Hong Kong Listing Rules, among other things, the auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the continuing connected transactions were not, in all material respects, in accordance with the pricing policies of the listed issuer’s group if the transactions involve the provision of goods or services by the listed issuer’s group. With reference to the Company’s annual reports for FY2016 and FY2017, among other things, the auditors of the Company have issued a letter confirming that nothing has come to their attention that causes them to believe that the continuing connected transactions (including but not limited to the Securities and Financial Services Transactions) were not, in all material respects, in accordance with the pricing policies of the Group for transactions involving the provision of goods or services by the Group.

In addition, Everbright Group and its associates primarily charge services fees for the Securities and Financial Services to be provided to the Group. The respective pricing mechanisms for the relevant Securities and Financial Services are set out under the section headed “B.2.2 Pricing basis of the Securities and Financial Services to be provided by the Everbright Group and its associates to the Group” of the Board Letter.

For our due diligence purpose, we requested and obtained over 20 copies of contracts/deposit records/tendering document in total relating to the provision of all five types of services from Everbright Group to the Group under the 2016 Everbright Group Financial Products and Services Framework Agreement and similar services from independent third parties to the Group. Such types of services includes (i) deposit services; (ii) financial products sale services; (iii) deposits management and custody services; (iv) loan services; and (v) other securities and financial advisory and consulting services and monetary brokerage services. We noted that pricing terms offered by Everbright Group to the Group were comparable to those offered by the independent third parties to the Group.

Pricing approval and supervision

The Group has adopted a series of internal pricing policies and approval procedures to regulate the mutual provision of securities and financial services between the Group and the Everbright Group and its associates. Details of the major internal policies are set out under the section headed “B.3 Pricing approval and supervision of the Securities and Financial Services” of the Board Letter. We obtained and reviewed the documents showing internal pricing policies and approval procedures to regulate the mutual provision of securities and financial services between the Group and the Everbright Group and its associates.

For our due diligence purpose, we discussed with the Directors regarding internal guidelines and policies for conduct of different types of securities and financial services.

We noted from the documents that, among other things, that (i) the Group established its internal guidelines and policies for conduct of different types of securities and financial services; (ii) the Group would conduct pricing quotations/offering procedures from/to at least two independent third parties for contemporaneous transactions or compare to those offered

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by/to an independent third party for comparable services; and (iii) the Group established the Related Party/Connected Transactions Working Group in 2016, which comprises staff from various department and are mainly responsible for managing the Group’s related party/connected transactions on a daily basis. As such, we consider that the internal control procedures are sufficient for the Company to monitor the Securities and Financial Services Transactions and the effective implementation of the procedures would help to ensure fair pricing of the transactions contemplated under the Securities and Financial Services Transactions according to the pricing policies.

In addition, we further discussed with senior management, the Related Party/Connected Transactions Working’s members (who were from different departments) and the staffs of the Company’s major relevant business departments and subsidiaries and understood that the aforesaid parties will comply with relevant implemented internal approval and monitoring procedures when conducting the Securities and Financial Services Transactions.

In light of the above, we are of the view that the terms of the Securities and Financial Services Transactions are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

The historical amounts and the proposed annual caps

Set out below are (i) the actual historical transaction amount of the Securities and Financial Services Transactions for the two years ended 31 December 2017 and six months ended 30 June 2018 with existing annual caps; and (ii) the proposed annual caps for the three years ending 31 December 2021 (the “ Financial Services Annual Cap(s) ”):

	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2016	2017	2018
Securities and Financial
Services Transactions –
Revenue nature	RMB’million	RMB’million	RMB’million
Actual historical amount	338.5	320.4	105.9_(Note)_
Existing annual caps	588.5	792.4	1,048.6
Utilisation rate	57.5%	40.4%	N/A
Securities and Financial
Services Transactions –
Expense Nature	RMB’million	RMB’million	RMB’million
Actual historical amount	119.0	117.1	43.3_(Note)_
Existing annual caps	121.0	146.0	176.0
Utilisation rate	98.3%	80.2%	N/A

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LETTER FROM GRAM CAPITAL

	For the	For the	For the
	year ending	year ending	year ending
	31 December	31 December	31 December
	2019	2020	2021
Securities and Financial
Services Transactions	RMB’million	RMB’million	RMB’million
Revenue generated by the
Group from provision of
securities and financial
services to the Everbright
Group and its associates	950.0	1,050.0	1,200.0
Fees paid by the Group to the
Everbright Group and its
associates for their provision
of securities and financial
services	250.0	290.0	330.0

Note: the figures were for the six months ended 30 June 2018.

With reference to the Board Letter, the Financial Services Annual Caps for the three years ending 31 December 2021 were determined after taking into account of various factors, details of which are set out under the section headed “B.5.2 Basis of determination of the proposed annual caps for the revenue to be generated by the Group from provision of the Securities and Financial Services to the Everbright Group and its associates” and “B.5.3 Basis of determination of the proposed annual caps for the fees to be paid by the Group for provision of the Securities and Financial Services by the Everbright Group and its associates” of the Board Letter.

According to the above table, the utilisation rates of existing Financial Services Annual Caps for the two years ended 31 December 2017 for revenue nature were not at high levels, which was mainly due to the fact that China’s capital market condition weakened. The utilisation rates of existing Financial Services Annual Caps for the two years ended 31 December 2017 for expense nature were at high levels.

Furthermore, the Financial Services Annual Cap for the year ending 31 December 2019 for revenue nature represented an increase of approximately 197% as compared to the historical amount of that for the year ended 31 December 2017; while the Financial Services Annual Cap for the year ending 31 December 2019 for expense nature represented an increase of approximately 113% as compared to the historical amount of that for the year ended 31 December 2017.

We also understood from the Directors, the Securities and Financial Services Transactions are highly market-sensitive and subject to the market conditions which are volatile and vulnerable to numerous complicated factors, such as economic environment.

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To assess the fairness and reasonableness of the Financial Services Annual Caps for the year ending 31 December 2019, in particular the substantial increase as compared to those for FY2017, we conducted following analyses:

With reference to the 2018 Interim Report, since the beginning of the 2018, China’s economy has weakened slightly, Sino-US trade disputes have become volatile and the PBOC has made two RRR (reserve requirement ratios) cuts. The A-share market weakened generally under the reciprocal effect of various internal and external factors such as deleveraging and trade wars. The major indexes fell across the board, suggesting a sign of the evident market concerns over the existing in-market capital or even reduced capital. The capital market was experiencing a structural change, indicating a switch in investors’ favor from stocks to bonds. During the first six months ended 30 June 2018, the SSE Composite Index and CSI 300 Index fell by 13.9% and 12.9% respectively, while the ChinaBond Aggregate Full Price (Total Value) Index rose by 2.99%. The trading volume of the secondary market was significantly shrinking, with thin trading and low level of transaction activities. In the first half of 2018, the daily average unilateral turnover of stocks and funds in the market was RMB480.5 billion, decreased by 3.63% from the end of 2017. As at the end of June 2018, the balance of securities margin trading of the SSE and SZSE was RMB919.4 billion, decreased by 10.42% from the end of 2017. The primary market witnessed a downturn in the volume of underwriting. According to the statistics from Wind Info, as at the end of June 2018, the total amount of proceeds raised from the A-share market was RMB660.5 billion, decreased by 21% from the same period last year; the amount of proceeds raised from IPO was RMB92.3 billion, decreased by 26% from the same period last year; the refinancing volume was RMB367.8 billion, decreased by 45.41% from the same period last year; according to the statistics from the Securities Association of China, volume of bond underwriting by securities companies was RMB3.28 trillion in the first half of 2018, increased by 9.63% from the same period last year.

Despite that China’s capital market condition weakened and Sino-US trade disputes became volatile, the Directors consider that China’s capital market would be positive in long run.

Upon our further request, the Company provided us a list showing the breakdown of Financial Services Annual Caps for each of the three years ending 31 December 2021. We understood from the Company that relevant subsidiaries of the Company provided an estimation of the forecasted sale and purchase amount of Securities and Financial Services for the three years ending 31 December 2021. Such forecasted amounts were approved by management of the relevant subsidiaries before submitting to the Company for consolidation and review. The Planning and Finance Department of the Company was responsible for the consolidation and review. Based on the list, we performed following analyses:

Financial Services Annual Caps (revenue nature)

We noted from the list that in respect of Financial Services Annual Caps (revenue nature), the expected sum of fees from underwriting and sponsorship services, other investment banking services, and interest income from deposit and finance lease (i) represented over 80%

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of Financial Services Annual Caps (revenue nature) for the three years ending 31 December 2021; and (ii) for the year ending 31 December 2019 represented an increase of approximately 188% as compared to those for FY2017.

As advised by the Directors, such increase was mainly due to the factors including:

(i) it is expected that the gross issue size of the ABS market will at least maintain at a growth rate of 37.1% if the PRC equity market recovers from 2019, and the average growth rate of the ABS issued by the Company by proxy will maintain rapid growth;
(ii) Everbright Group has newly formulated the medium and long-term strategic plans and formulated the synergistic substrategy at the same time to promote and enhance the Everbright Group’s linkage work to new heights from administration-driven to strategy-led. The implementation of these strategic plans will be implemented from 2019. Based on the relevant plans, the Company will lead the work of the investment banking strategic business within the Everbright Group;
(iii) the possible effect from New Regulations on Asset Management;
(iv) the scope of business of the Company’s investment banking related services has been expanding, including the newly-developed innovative financing instruments;
(v) with the continuous expansion of business scale of Everbright Fortune Leasing, a subsidiary of the Group, it is expected that the Group will engage in more finance leasing business with the Everbright Group and its associates.

Upon our request, we (i) discussed with the Directors regarding medium and long-term strategic plan; (ii) understood the newly-developed investment banking related services; and (iii) understood the expected interest income from finance lease for the next three years.

Financial Services Annual Caps (expense nature)

We further noted from the list that in respect of Financial Services Annual Caps (expense nature), the expected sum of fees for financial products sale services, deposits management and custody services and interest expenses for loan services (i) represented approximately 90% of Financial Services Annual Caps (expense nature) for the three years ending 31 December 2021; and (ii) for the year ending 31 December 2019 represented an increase of approximately 94% as compared to those for FY2017.

As advised by the Directors, such increase was mainly due to the factors including:

(i) from 2015 to 2017, the aggregate size of assets under management of various financial institutions in the PRC recorded an average annual growth rate of 18.4% per annum;

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(ii) the possible increase in proxy sale commissions and fees of the Group’s financial products to be paid to Everbright Bank;
(iii) the possible increase in size of customers’ assets that may be translated into investment in wealth management products;
(iv) the possible effect from New Regulations on Asset Management;
(v) the possible increase in the size of the Group’s finance leasing business and Hong Kong subsidiaries’ business.

Upon our request, we (i) obtained historical data regarding the proxy sale commissions and fees paid to Everbright bank for its proxy sale of the Group’s asset management products, showing an average annual increase of approximately 30% from 2014 to 2017; (ii) were advised that the number of branches of Everbright Bank in the PRC, being the primary proxy sale channels of the Company’s financial products, increased from 114 to 128; (iii) were advised that the size of deposits of Everbright Bank as at 30 June 2018 increased by 7% as compared to that as at 31 December 2017, which may be translated into investment in wealth management products; (iv) obtained the New Regulations on Asset Management; and (v) were advised that from 2015 to 2017, the interest expenses of the Group grew by approximately 94% per annum.

We further discussed with the Relevant Personnel, regarding consolidation and review of the forecasted sale and purchase amounts of Securities and Financial Services for the three years ending 31 December 2021. As mentioned above, the Planning and Finance Department of the Company was responsible for the consolidation and review. The Relevant Personnel, being the head of Planning and Finance and with extensive experience in this industry, is familiar with the Group’s operation and this industry. As such, we consider the discussion with the Relevant Personnel would allow us to have a better understanding in respect of the bases of the Financial Services Annual Caps for the three years ending 31 December 2021.

We understood from the Relevant Personnel (i) the estimated sale and purchase amount and the bases and assumptions for determining the Financial Services Annual Caps, in particular, the classification of estimated services amounts and estimation on each of the category of services to be provided to/accepted from the Everbright Group for each of the three years ending 31 December 2021; (ii) that it would be in the interests of the Group for the Financial Services Annual Caps to be as accommodating to the Group as possible, provided that the conduct of those transactions would be strictly followed relevant internal control procedure to ensure the fair pricing; (iii) the Group would have flexibility in the provision and accepting of Securities and Financial Services if the Financial Services Annual Caps are tailored to the future business and market growth; and (iv) if the Financial Services Annual Caps are set without considering sufficient room for future business and market growth and the Company has to revise the annual caps upward at a general meeting before conducting additional transactions, the Company’s business may be restricted and it will have to incur additional administrative costs and resources to obtain approval from the Independent

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Shareholders. During our discussion, we have not identified any major factor which caused us to doubt the reasonableness of the estimation of the sale and purchase amount of the Securities and Financial Services for the three years ending 31 December 2021.

In light of the above factors, including (i) current status of PRC capital market; (ii) increase in members of Everbright Group since 2015; (iii) our findings on the list which shows the breakdown of Financial Services Annual Caps for each of the three years ending 31 December 2021 and reasons for increase in its majority components; and (iv) our discussion with Relevant Personnel who had over 20 year-experience in the industry, we concur with the Directors that the Financial Services Annual Caps for the three years ending 31 December 2021 to be fair and reasonable.

Shareholders should note that as the Financial Services Annual Caps for the three years ending 31 December 2021 are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2021, and they do not represent forecasts of revenue/income/cost to be incurred from the Securities and Financial Services Transactions. Consequently, we express no opinion as to how closely the actual revenue/income/cost to be incurred from the Securities and Financial Services Transactions will correspond with the Financial Services Annual Caps.

Hong Kong Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Hong Kong Listing Rules pursuant to which (i) the values of the transactions under the New Everbright Group Financial Products and Services Framework Agreement must be restricted by the Financial Services Annual Caps and/or the Financial Products Annual Caps for the period concerned under the New Everbright Group Financial Products and Services Framework Agreement; (ii) the terms of the transactions under the New Everbright Group Financial Products and Services Framework Agreement must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors’ annual review on the terms of the transactions contemplated under New Everbright Group Financial Products and Services Framework Agreement must be included in the Company’s subsequent published annual reports and financial accounts.

Furthermore, it is also required by the Hong Kong Listing Rules that the auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement (i) have not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the listed issuer’s group if the transactions involve the provision of goods or services by the listed issuer’s group; (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the annual caps.

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In the event that the total amounts of the transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement are anticipated to exceed the annual caps, or that there are any proposed material amendment to the terms of the New Everbright Group Financial Products and Services Framework Agreement, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Hong Kong Listing Rules governing continuing connected transactions.

RECOMMENDATION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the New Everbright Group Financial Products and Services Framework Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the transactions contemplated under the New Everbright Group Financial Products and Services Framework Agreement are in the interests of the Company and the Shareholders as a whole and conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the New Everbright Group Financial Products and Services Framework Agreement and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

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NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

Everbright Securities Company Limited 光大證券股份有限公司

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

(Stock Code: 6178)

NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2018 second extraordinary general meeting of Everbright Securities Company Limited (the “ Company ”) will be held at 2:30 p.m. on Tuesday, December 18, 2018 at Jing’an International Plaza, No. 1508, Xinzha Road, Jing’an District, Shanghai, the PRC, to consider and, if thought fit, approve the following resolutions. Unless otherwise specified, capitalized terms used in this notice shall have the same meanings as those defined in the circular of the Company dated October 31, 2018.

ORDINARY RESOLUTIONS

To consider and approve the resolution regarding the New Everbright Group Financial Products and Services Framework Agreement, the continuing connected transactions contemplated thereunder and the annual caps for the three years ending December 31, 2021 relating thereto.
To consider and approve the resolution regarding the proposed amendments to the Rules Governing the Management of Related Party Transactions.
To consider and approve the resolution regarding the proposed amendments to the Rules Governing the Management and Use of Funds Raised.

SPECIAL RESOLUTION

To consider and approve the resolution regarding the proposed general mandate to issue onshore debt financing instruments of the Company, including:
4.1 Issuer, issue size and issue method
4.2 Types of debt financing instruments
4.3 Term of debt financing instruments
4.4 Interest rate of debt financing instruments

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NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

4.5 Security and other arrangements
4.6 Use of proceeds
4.7 Issue price
4.8 Issue target and arrangements on placement to shareholders of the Company in respect of the Company Onshore Debt Financing Instruments
4.9 Listing of debt financing instruments
4.10 Safeguard measures for repayment of the Company Onshore Debt Financing Instruments
4.11 Validity period of resolution
4.12 Authorization for the issuance of the Company Onshore Debt Financing Instruments

By order of the Board Everbright Securities Company Limited Xue Feng Chairman

Shanghai, the PRC October 31, 2018

As at the date of this notice, the Board of the Company comprises Mr. Xue Feng (Chairman, Executive Director), Mr. Ju Hao (Non-executive Director), Mr. Yan Jun (Nonexecutive Director), Mr. Song Bingfang (Non-executive Director), Mr. Yin Lianchen (Nonexecutive Director), Mr. Chan Ming Kin (Non-executive Director), Mr. Xue Keqing (Nonexecutive Director), Mr. Xu Jingchang (Independent Non-executive Director), Mr. Xiong Yan (Independent Non-executive Director), Mr. Li Zheping (Independent Non-executive Director) and Mr. Au Sing Kun (Independent Non-executive Director).

Notes:

1. Eligibility for Attending the EGM and Closure of Register of Members for H Shares

The H Share register of members of the Company will be closed for the purpose of determining H Shareholders’ entitlement to attend the EGM from Sunday, November 18, 2018 to Tuesday, December 18, 2018 (both days inclusive), during which period no transfer of H Shares will be registered. In order to attend the EGM, H Shareholders should ensure that all transfer documents, accompanied by the relevant share certificates, are lodged with the Company’s H share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, no later than 4:30 p.m. on Friday, November 16, 2018 to complete registration.

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NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

The Company will announce separately on the Shanghai Stock Exchange for details of A Shareholders’ eligibility for attending the EGM.

2. Proxy

(1) Any Shareholder entitled to attend and vote at the EGM is entitled to appoint one or more proxies to attend and vote at the meeting on his or her behalf. A proxy need not be a Shareholder.
(2) The instrument appointing a proxy must be in writing by the appointor or his attorney duly authorized in writing, or if the appointor is a legal entity, either under seal or signed by a director or a duly authorized attorney.

To be valid, for H Shareholders, the form of proxy or other documents of authorization must be delivered to Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, no later than 24 hours before the time fixed for the EGM (i.e. 2:30 p.m. on Monday, December 17, 2018) (the form of proxy for the EGM is enclosed herewith).

Completion and return of the form of proxy will not preclude the Shareholders from attending in person and voting at the EGM or at any adjourned meeting.

3. Registration Procedures for Attending the EGM

(1) A Shareholder or his proxy should produce proof of identity when attending the EGM. If a Shareholder is a legal person, its legal representative or other person authorized by the board of directors or other governing body of such Shareholder may attend the EGM by producing a copy of the resolution of the board of directors or other governing body of such Shareholder appointing such person to attend the meeting.
(2) Shareholders intending to attend the EGM in person or by their proxies should return the completed and signed reply slip for attending the EGM in person, by post or by fax to Computershare Hong Kong Investor Services Limited (for H Shareholders), or to the Company’s Board office (for A Shareholders) on or before Wednesday, November 28, 2018.

4. Voting by Poll

According to Rule 13.39(4) of the Hong Kong Listing Rules, any vote of shareholders at a general meeting must be taken by poll. Accordingly, the Chairman of the EGM will exercise his power under the Articles of Association to demand a poll in relation to all the resolutions to be proposed at the EGM. Results of the poll voting will be posted on the website of the Company at www.ebscn.com and on the HKExnews website of Hong Kong Exchanges and Clearing Limited at www.hkexnews.hk upon the conclusion of the EGM.

5. Abstention from Voting

6. Miscellaneous

(1) The duration of the EGM is expected not to exceed half a day. Shareholders who attend the EGM shall arrange for their own transportation and accommodation at their own expenses.
(2) The address of Computershare Hong Kong Investor Services Limited is at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (Telephone: (852) 2862 8555, Fax: (852) 2865 0990).
(3) The address of the Company’s Board office is at No. 1508 Xinzha Road, Jing’an District, Shanghai, the PRC (Postcode: 200040, Telephone: (86) 21 2216 9914, Fax: (86) 21 2216 9964).

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS

APPENDIX I

Existing Articles Number and Content Article 5 Legal persons of which any of the following circumstances apply are regarded as related legal persons of the Company:

(I) legal persons or other organisations who have direct or indirect control of the Company;

(II) legal persons or other organisations who are directly or indirectly controlled by the legal persons mentioned in Clause (I) above, but excludes the Company and its controlling subsidiaries;

(III) legal persons or other organisations who are directly or indirectly controlled by the related natural persons of the Company; or whose directors and senior management officers are related natural persons, but excludes the Company and its controlling subsidiaries;

(IV) legal persons or other organisations who hold more than 5% of the shares of the Company;

(V) legal persons or other organisations who may have interests of the Company tilted towards them due to their special relations with the Company as identified by the CSRC, the stock exchange or the Company based on the “substance over form” principle.

New Articles Number and Content Basis of Amendments

Article 5 Legal persons or other organisations of which any of the following circumstances apply are regarded as related legal persons of the Company:

Pursuant to Article 8 of the Shanghai Stock Exchange Implementing Guidelines for Related Party Transactions of Listed Companies, the relevant statement is “legal persons or other organisations of which any of the following circumstances apply are regarded as connected legal persons of the listed company”.

(I) legal persons or other organisations who have direct or indirect control of the Company;

(II) legal persons or other organisations who are directly or indirectly controlled by the legal persons as mentioned in Clause (I) above, but excludes the Company and its controlling subsidiaries;

indirectly controlled by the legal Pursuant to Clause 1(I) of the persons as mentioned in Clause Circular on Matters Concerning (I) above, but excludes the Further Strengthening the Company and its controlling Regulation of the Related Party subsidiaries; Transactions of Securities Companies (Hu Zheng Jian Ji (III) legal persons or other Gou Zi [2018] No. 198), it is organisations who are directly or required that “the Company shall indirectly controlled by the thoroughly identify and related natural persons of the dynamically safeguard the Company; or whose directors and effective information of the senior management officers are controlling shareholders, the de related natural persons, but facto controllers and their excludes the Company and its controlling enterprises as well as controlling subsidiaries; the major upstream and downstream enterprises of the (IV) legal persons or other abovementioned enterprises organisations who hold more than (hereinafter generally referred to 5% of the shares of the Company; as the controlling shareholders and their relevant parties) and (V) legal persons or other incorporate the transactions organisations (including the between the securities companies controlling shareholders, the de and the controlling shareholders, facto controllers and the major the de facto controllers and the upstream and downstream major upstream and downstream enterprises of their controlling enterprises of their controlling enterprises) who may have enterprises into the rules interests of the Company tilted governing the related party towards them due to their special transactions based on the relations with the Company as “substance over form” principle”. identified by the CSRC, the stock exchange or the Company based on the “substance over form” principle.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS

APPENDIX I

Existing Articles	Existing Articles	Number	and	New Articles Number
	Content			and Content	Basis of Amendments
Article 9 A written agreement				Article 9 A written agreement	Pursuant	to Article 30 of	the
shall be entered into with respect				shall be entered into with respect	Shanghai	Stock Exchange
to the related party transactions				to the related party transactions	Implementing Guidelines		for
between the Company and the				between the Company and the	Related	Party Transactions	of
related parties. The related			party	related partieswhich specifies the	Listed Companies, a listed
transaction	agreements shall be			pricing policies of the related	company	shall enter into	an
entered into following			the	party transactions. The related	agreement in writing with respect
principles	of	fairness,		party transaction agreements	to the related party transactions,
willingness,	equivalence of		value	shall be entered into following	which specifies the pricing
and with	consideration.		The	the principles of fairness,	policies	of the related party
contents of	the agreements		shall	willingness, equivalence of value	transactions. Where, during		the
be clear	and specific.		The	and with consideration. The	implementation process of		the
Company	shall	disclose	the	contents of the agreements shall	related party transactions, there
circumstances of		entering	into,	be clear and specific. The	are significant changes to		the
variation,	termination		and	Company shall disclose the	transaction prices and other		key
performance of the agreements in				circumstances of entering into,	terms of agreements,		the
accordance	with the		rules	variation, termination and	Company	shall perform	the
governing the listing of stocks on				performance of the agreements in	corresponding examination		and
the stock exchanges on which the				accordance with the rules	approval	procedures again based
shares of the Company are			listed	governing the listing of stocks on	on the	revised transaction
and other	applicable		laws,	the stock exchanges on which the	amounts.
regulations	and regulatory			shares of the Company are listed
documents.				and other applicable laws,
				regulations and regulatory
				documents. Where, during the
				implementation process of the
				related party transactions, there
				are significant changes to the
				transaction prices and other key
				terms of the agreements, the
				Company shall perform the
				corresponding examination and
				approval procedures again based
				on the revised transaction
				amounts.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS

APPENDIX I

Existing Articles Number and	New Articles Number
Content	and Content		Basis of Amendments
Newly-added article	Article 11 The pricing of the	Added		pursuant	to Article 31		of
	related party transactions of the	the	Shanghai		Stock	Exchange
	Company shall be fair and	Implementing			Guidelines		for
	executed with reference to the	Related		Party	Transactions		of
	following principles:	Listed Companies.
	(I) where the transactions
	implement the government
	pricing, such prices apply
	directly;
	(II) where the transactions
	implement the government-
	guided prices, the transaction
	price may be determined
	reasonably within the range of
	the government-guided prices;
	(III) except where the
	government pricing or the
	government-guided prices apply,
	if there is a comparable
	independent third party market
	price or charging standard, the
	transaction price may be
	determined with reference to such
	price or standard with priority;
	(IV) where there is no
	comparable independent third
	party market price, the
	transaction price may be
	determined with reference to the
	price of a non-related party
	transaction occurring between the
	related party and a third party
	independent of such related
	party;
	(V) if there is neither independent
	third party market price nor
	independent non-related party
	transaction price for reference, a
	reasonable price could be served
	as the pricing basis, the formed
	price is the reasonable cost plus
	the reasonable profit.
Newly-added article	Article 12 Where the related	Added		pursuant	to Article 33		of
	party transaction of the Company	the	Shanghai		Stock	Exchange
	cannot be priced based on the	Implementing			Guidelines		for
	above principles, the pricing	Related		Party	Transactions		of
	principle and method of such	Listed Companies.
	related party transaction shall be
	disclosed, and an explanation as
	to the fairness of such pricing
	shall be given.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS

APPENDIX I

Existing Articles Number and Content

New Articles Number and Content

Basis of Amendments

Article 13 The Company’s Article 15 The Company’s division of authority is as follows division of authority is as follows when it considers the related when it considers the related party transactions which meet the party transactions which meet the approval requirements of the approval requirements of the Listing Rules of the Shanghai Listing Rules of the Shanghai Stock Exchange (revised ~~in 2014~~ ) Stock Exchange (revised in 2018) (hereinafter referred to as the (hereinafter referred to as the “SSE Listing Rules”): “SSE Listing Rules”):

Pursuant to Article 20 of the Shanghai Stock Exchange Implementing Guidelines for Related Party Transactions of Listed Companies, where the related party transactions proposed to be entered into between a listed company and the related parties meet one of the following standards, such transactions shall be submitted to the Board of Directors and the general meeting for consideration in addition to being disclosed in a timely manner:

(I) ~~related party~~ transaction with (I) material related party transactions shall be submitted to an amount of over RMB30 transaction with an amount of the Board of Directors and the million and accounting for over over RMB30 million and general meeting for consideration 5% of the absolute value of the accounting for over 5% of the in addition to being disclosed in a latest audited net assets of the absolute value of the latest timely manner: Company; ~~shall be submitted to~~ audited net assets of the ~~the general meeting for~~ Company, in addition to being (I) material related party ~~consideration after consideration~~ disclosed in a timely manner, transaction with an amount of ~~by the Board.~~ shall be submitted to the general over RMB30 million and meeting for consideration by the accounting for over 5% of the (II) related party transaction with Board of Directors after its absolute value of the latest an amount of over RMB3 million consideration. Where the audited net assets of the listed and accounting for over 0.5% of Company proposes to enter into a company (save for the listed the absolute value of the latest material related party transaction, company’s provision of audited net assets of the it shall provide audit or guarantee, being gifted with cash Company (and failing to meet the assessment report which is issued assets and indebtedness for the standards in Clause (I) of this by the securities services mere reduction of or exemption Article) is submitted to the Board institutions with qualifications to from the listed company’s of Directors for consideration and execute securities and futures obligations). Where the listed decision. Related party related business, in respect of the company proposes to enter into a transaction below such standard object of the transaction. For the material related party transaction, is decided by the president; object of transaction involved in it shall provide audit or the related party transaction assessment report which is issued (III) related party transaction which is relevant to the daily by the securities services occurring between the Company operations as stated in Chapter 7 institutions with qualifications to and the connected natural persons of the Implementation Guidelines execute securities and futures with an amount of over on Related Party Transactions, related business, in respect of the RMB300,000 (and failing to meet there can be no audit or object of the transaction. For the the standards in Clause (I) of this assessment. object of transaction involved in Article) is considered and the related party transaction decided by the Board of which is relevant to the daily Directors; and related party operations as stated in Chapter 7, transaction with an amount below there can be no audit or RMB300,000 is decided by the assessment; president. (II) provision of guarantee to the related parties by the listed company.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS

APPENDIX I

Existing Articles Number and	Existing Articles Number and	Existing Articles Number and	Existing Articles Number and	Existing Articles Number and	Existing Articles Number and	Existing Articles Number and	New Articles Number
			Content				and Content		Basis of Amendments
							(II) related party transaction with
							an amount of over RMB3 million
							and accounting for over 0.5% of
							the absolute value of the latest
							audited net assets of the
							Company (and failing to meet the
							standards in Clause (I) of this
							Article) is submitted to the Board
							of Directors for consideration and
							decision and shall be disclosed
							timely. Related party transaction
							below such standard is decided
							by the president;
							(III) related party transaction
							occurring between the Company
							and the connected natural persons
							with an amount of over
							RMB300,000 (and failing to meet
							the standards in Clause (I) of this
							Article) is considered and
							decided by the Board of Directors
							and shall be disclosed timely;and
							related party transaction with an
							amount below RMB300,000 is
							decided by the president.
Article 24 For the related party							Article 26 Independent Directors	Pursuant to		Clause 1(II) of				the
transactions			that are		proposed to		shall issue an opinion as to the	Circular on		Matters Concerning
be	entered		into	between		the	fairness and compliance with	the	Further	Strengthening				the
Company		and the		related parties,			applicable laws and regulations	Regulation of the				Related Party
when the		independent Directors					of the material related party	Transactions			of		Securities
view that		it	is difficult to assess				transactions.For the related party	Companies		(Hu	Zheng Jian Ji
whether or not the related party							transactions that are proposed to	Gou Zi [2018]			No.		198),	the
transactions			are fair		in reliance		be entered into between the	independent		Directors			shall issue
on	the information submitted to						Company and the related parties,	an opinion as to			the fairness			and
the	Board	of Directors or general					when the independent Directors	compliance		of		the	material
meeting for			consideration, they				view that it is difficult to assess	related party transactions.
have the		right		to	engage	an	whether or not the related
independent			professional adviser				transactions are fair in reliance
individually			or jointly to audit the				on the information submitted to
related		party			transactions		the Board of Directors or general
conditions			and		provide	a	meeting for consideration, they
professional			report or consulting				have the right to engage an
advice at		the expense of				the	independent professional adviser
Company.							individually or jointly to audit the
							related party transactions
							conditions and provide a
							professional report or consulting
							advice at the expense of the
							Company.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT OF RELATED PARTY TRANSACTIONS

APPENDIX I

Existing	Articles Number and	Articles Number and	Articles Number and	New Articles Number
	Content			and Content	Basis of Amendments
Newly-added article				Article 30 The Company’s	Pursuant to Clause 1(III) of	the
				internal audit department shall	Circular on Matters Concerning
				conduct internal auditing	the Further Strengthening	the
				supervision on the management	Regulation of the Related Party
				of the related party transactions,	Transactions of Securities
				formulate specific auditing	Companies (Hu Zheng Jian	Ji
				mechanism for material related	Gou Zi [2018] No. 198), it	is
				party transactions and audit the	required that the securities
				material related party	companies shall designate
				transactions one by one to ensure	departments to audit the material
				the truthfulness, accuracy and	related party transactions one	by
				completeness of the information	one to ensure the truthfulness,
				in the audit report. The audit	accuracy and completeness of	the
				report shall be submitted to the	information in the audit report.
				Board of Directors for	The audit report shall	be
				consideration.	submitted to the Board	of
					Directors for consideration.”
Newly-added article				Article 31 Where respective	Pursuant to Clause 1(I) of	the
				departments, respective	Circular on Matters Concerning
				subsidiaries of the Company and	the Further Strengthening	the
				their relevant personnel violates	Regulation of the Related Party
				the requirements of these rules,	Transactions of Securities
				the relevant person-in-charge is	Companies (Hu Zheng Jian	Ji
				accountable in accordance with	Gou Zi [2018] No. 198), the rules
				the requirements of the laws,	governing the management	of
				regulations and regulatory	related party transactions shall
				documents.	include the particulars	of
					accountability.
Article 28		These rules	effect	Article 32 These rules effect	–
from the	date of approval		at the	from the date of approval at the
general meeting of the Company				general meeting of the Company,
~~from the ~~	~~date on which ~~		~~the H~~	and the existing rules on the
~~shares issued~~		~~by the Company are~~		Management of Related Party
~~listed on ~~	~~the Hong Kong ~~		~~Stock~~	Transactions lapse automatically.
~~Exchange~~, and the existing rules
on the Management of Related
Party	Transactions		lapse
automatically.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT AND USE OF FUNDS RAISED

APPENDIX II

Existing Articles Number and Content

Article 1 To regulate the management and use of funds raised of Everbright Securities Company Limited (the “Company”), enhance the usage efficiency of funds raised and safeguard the legitimate interests of all the shareholders, these rules are formulated in accordance with the relevant requirements of the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Listing Rules of the Shanghai Stock Exchange, the Administrative Measures for the Issuance of Securities by Listed Companies, the Guidelines for the Supervision and Administration on Listed Companies No. 2 – Supervision and Administration Requirements for Listed Companies on the Management and Use of Funds Raised, the Measures for the Management of Raised Funds of Listed Companies on the Shanghai Stock Exchange (revised in 2013) and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Hong Kong Listing Rules”).

Article 2 The funds raised mentioned in these rules refer to the funds raised from the investors through the public offering of securities (including the initial public offering of shares, placement of shares, follow-on offering, issuance of convertible corporate bonds, issuance of convertible corporate bonds with warrants) and nonpublic offering of securities, but do not include the funds raised from the Company’s implementation of the equity incentive plan.

New Articles Number and Content

Article 1 To regulate the management and use of funds raised of Everbright Securities Company Limited (the “Company”), enhance the usage efficiency of funds raised and safeguard the legitimate interests of all the shareholders, these rules are formulated in accordance with the relevant requirements of the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Listing Rules of the Shanghai Stock Exchange, the Administrative Measures for the Issuance of Securities by Listed Companies, the Administrative Measures for the Issuance and Trading of Corporate Bonds, the Guidelines for the Supervision and Administration on Listed Companies No. 2 – Supervision and Administration Requirements for Listed Companies on the Management and Use of Funds Raised, the Measures for the Management of Raised Funds of Listed Companies on the Shanghai Stock Exchange (revised in 2013).

Article 2 The funds raised mentioned in these rules refer to the funds raised from equities and funds raised from bonds. Among which, the funds raised from equities refer to the funds raised from the investors through the public offering of securities (including the initial public offering of shares, placement of shares, follow-on offering, issuance of convertible corporate bonds, issuance of convertible corporate bonds with warrants) and non-public offering of securities, but do not include the funds raised from the Company’s implementation of the equity incentive plan, the specific administrative measures are set out in Chapter II of these rules. The funds raised from bonds refer to the funds raised from the issuance of bonds by the Company in the domestic and overseas markets through the stock exchange, inter-bank market or other places of issuance as permitted by the regulatory authorities, the specific administrative measures are set out in Chapter III of these rules.

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COMPARISON TABLE OF THE AMENDMENTS TO THE RULES GOVERNING THE MANAGEMENT AND USE OF FUNDS RAISED

APPENDIX II

	Existing Articles Number and Content
	Chapter II Deposit of Funds Raised
			from Equities
	Chapter III Use of Funds Raised




			used for the agreed purposes.
	Chapter V Supplementary Provisions		Chapter ~~V~~IV Supplementary
	Article 15 These rules effect from the date on which the H shares issued by the Company are listed on the Hong Kong Stock Exchange upon the approval date at the general meeting of the Company, and the existing Rules Governing on the Management and Use of Funds Raised lapses automatically. These rules are subject to the interpretation of the Board.

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PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

APPENDIX III

1. ISSUER, ISSUE SIZE AND ISSUE METHOD

The Company will act as the issuer of the Company Onshore Debt Financing Instruments. The Company Onshore Debt Financing Instruments shall be issued on an one-off or multiple issuances or multi-tranche issuances basis through public offering upon approval by or filing with the CSRC and other relevant authorities in accordance with relevant regulations, or through non-public placement to qualified investors in accordance with the relevant regulations of the CSRC.

The aggregate issue size of the Company Onshore Debt Financing Instruments shall not be more than RMB100 billion (inclusive and based on the balance outstanding on the instruments issued), and shall be in compliance with the requirements prescribed in the relevant laws and regulations on the maximum amount of the specific debt financing instruments to be issued.

A resolution will be proposed by the management of the Company at the general meeting to authorize the management of the Company to determine, at their sole discretion, the details including the issuer, issue size, number of tranches and issue method in accordance with relevant laws and regulations as well as the advices and recommendations of regulatory authorities, the Company’s actual needs for funding and the then prevailing market conditions at the time of issuance, in order to maximize the interest of the Company.

2. TYPES OF DEBT FINANCING INSTRUMENTS

The Company Onshore Debt Financing Instruments will include (as the case may be) corporate bonds, subordinated bonds, subordinated debts, short-term corporate bonds of securities firms, short-term financing bills of securities firms, renewable corporate bonds, structured notes and other types permitted to be issued by regulatory authorities.

The subordinated debts and subordinated bonds to be issued under the Company Onshore Debt Financing Instruments do not contain any provision for conversion into shares.

A resolution will be proposed at the general meeting to authorize the management of the Company to determine the type of the Company Onshore Debt Financing Instruments and details of priorities for repayment of creditors in accordance with the relevant regulations and the then prevailing market conditions at the time of issuance.

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PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

APPENDIX III

3. TERM OF DEBT FINANCING INSTRUMENTS

The term of the fixed-term Company Onshore Debt Financing Instruments shall be no longer than 10 years (inclusive). It may have single or multiple maturities; the non-fixed-term Company Onshore Debt Financing Instruments are not subject to the aforementioned requirement on the term. A resolution will be proposed at the general meeting to authorize the management of the Company to determine the details including the term and size of each type of the Company Onshore Debt Financing Instruments in accordance with the relevant regulations and the then prevailing market conditions at the time of issuance.

4. INTEREST RATE OF DEBT FINANCING INSTRUMENTS

A resolution will be proposed at the general meeting to authorize the management of the Company and sponsoring institutions (lead underwriters, if any) to determine the interest rate of the Company Onshore Debt Financing Instruments as well as the method of calculation and payment thereof in accordance with the then prevailing domestic market conditions at the time of issuance and the relevant rules on interest rate management for debt financing instruments.

5. SECURITY AND OTHER ARRANGEMENTS

The Company will act as the issuer of the Company Onshore Debt Financing Instruments. A (counter) guarantee (if required) will be provided and a letter of support (if required) will be issued by the Company and/or third party(ies) depending on the structure of each issuance. A resolution will be proposed at the general meeting to authorize the management of the Company to determine the arrangement in relation to the details of the provision of (counter) guarantee and issue of letters of support depending on the structure of each issuance.

6. USE OF PROCEEDS

The proceeds raised from the issuance of the Company Onshore Debt Financing Instruments shall be used to fund the Company’s business development, improve the debt structure of the Company, supplement the working capital of the Company and/or make project investment. A resolution will be proposed at the general meeting to authorize the management of the Company to determine the details including the use of proceeds in accordance with the funding needs of the Company.

7. ISSUE PRICE

A resolution will be proposed at the general meeting to authorize the management of the Company to determine the issue price of the Company Onshore Debt Financing Instruments in accordance with the then prevailing market conditions at the time of issuance and relevant laws and regulations.

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APPENDIX III PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

8. ISSUE TARGET AND ARRANGEMENTS ON PLACEMENT TO SHAREHOLDERS OF THE COMPANY IN RESPECT OF THE COMPANY ONSHORE DEBT FINANCING INSTRUMENTS

The issue target of the Company Onshore Debt Financing Instruments shall be the onshore institutional investors and/or individual investors which meet the conditions for subscription in case of public offering or qualified investors in case of private placement.

The Company Onshore Debt Financing Instruments may be placed to the shareholders of the Company. A resolution will be proposed at the general meeting to authorize the management of the Company to determine the details of the arrangements on the placement (including whether to make such placement and the proportion of the placement, etc.) in accordance with the then prevailing onshore market conditions and other matters in connection with the issuance and the laws.

9. LISTING OF DEBT FINANCING INSTRUMENTS

A resolution will be proposed at the general meeting to authorize the management of the Company to apply for listing and transfer of the Company Onshore Debt Financing Instruments in accordance with the actual conditions of the Company.

10. SAFEGUARD MEASURES FOR REPAYMENT OF THE COMPANY ONSHORE DEBT FINANCING INSTRUMENTS

In respect of the mandate of issuance of the Company Onshore Debt Financing Instruments, a resolution will be proposed at the general meeting to authorize the management of the Company to adopt the following measures in accordance with laws, regulations or mandatory requirements of regulatory documents if applicable in the event that it is expected that the Company will be unable to repay the principal and interests of the bonds as scheduled, or the Company shall fail to repay the principal and interests of the bonds when they become due:

(1) increase the proportion of any surplus reserves and the proportion of general risk reserves during the duration of the bonds in order to reduce the solvency risk;
(2) no dividend shall be distributed to the shareholders of the Company;
(3) suspend the implementation of projects that incur capital expenditure such as material external investments, acquisitions and mergers;
(4) payment of salary and bonus of the Directors and senior management shall be reduced or ceased; and
(5) key responsible personnel accountable for such event shall not be allowed for re-designation.

– III-3 –

PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

APPENDIX III

11. VALIDITY PERIOD OF RESOLUTION

The shareholders’ resolution passed at the general meeting of the Company regarding the issuance of the Company Onshore Debt Financing Instruments shall be valid for a period of 36 months from the date of the resolutions being passed at the general meeting of the Company. After the resolution becomes effective, the validity of the authorization in respect of the onshore debt financing instrument of RMB80 billion as set out in the Resolution on the General Mandate to Issue Onshore Debt Financing Instruments by the Company (《關於對公司發行境內債務融資工具進行一般性授權的議案》) which was passed at the twenty-seventh meeting of the fourth session of the Board and the second extraordinary general meeting of 2017 of the Company will terminate automatically and the approved but outstanding issuance amounts as well as the amounts in issue but not repaid in respect of the debt financing instruments issued under such authorization will be included in the issuance amounts under the authorization for this issuance.

Where the Board and/or the management of the Company have, during the term of the authorization, decided the issuance or partial issuance of the Company Onshore Debt Financing Instruments, and provided that the Company has also, during the term of the authorization, obtained the approval or consent from or completed filing or registration (if applicable) with regulatory authorities on the issuance, the Company may, during the validity period of such approval, consent, filing or registration, complete the issuance or relevant partial issuance of the Company Onshore Debt Financing Instruments.

12. AUTHORIZATION FOR THE ISSUANCE OF THE COMPANY ONSHORE DEBT FINANCING INSTRUMENTS

To ensure effective coordination of the issuance of the Company Onshore Debt Financing Instruments and other matters in connection with the issuance, a resolution will be proposed at the general meeting to authorize the Board of the Company, and agree the Board of the Company in turn to further authorize the management of the Company to deal with, at its sole discretion, all matters in connection with the issuance of the Company Onshore Debt Financing Instruments in accordance with the relevant laws and regulations as well as the advices and recommendations from regulatory authorities, within the framework and under the principles approved at the general meeting, in order to maximise the interest of the Company, including without limitation:

(1) formulation and adjustment of the details of the proposal for the issuance of the Company Onshore Debt Financing Instruments in accordance with the applicable laws, regulations and relevant provisions from regulatory authorities as well as resolutions passed at the general meeting of the Company, and based on the actual conditions of the Company and the specific conditions of the relevant debt market, including without limitation, the determination of the suitable timing of issue, details of issue size and method, terms of issue, issue targets, maturity, whether to issue on an one-off, multiple issuances, multi-tranche issuances or multiple-category

– III-4 –

PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

APPENDIX III

issuances basis and, if on multiple issuances, multi-tranche issuances or multiplecategory issuances basis, the issue size and term of each issuance, tranche and category, the methods in which the nominal value and interest rate are determined, pricing method, issuance arrangements, guarantee arrangements, rating arrangement, details of subscription method, whether to incorporate terms of repurchase or redemption, details of placement arrangements, use of proceeds, registration, listing of the Company Onshore Debt Financing Instruments and place of listing, measures to mitigate repayment risks, measures to ensure debt repayment, etc. and all matters in connection with the issuance of the Company Onshore Debt Financing Instruments.

(2) determining and engaging intermediary agencies, signing, implementing, amending and completing all agreements and documents relating to the issuance of the Company Onshore Debt Financing Instruments, including without limitation, the sponsor agreement, underwriting agreement, letter of (counter) guarantee or (counter) guarantee agreement (if required), letter of support (if required), bond indenture (if required), engagement letter with intermediary agencies, trust agreement, settlement management agreement, registration and custody agreement, listing agreement and other legal documents, etc., and disclosing the relevant information in accordance with the relevant laws, regulations and the listing rules of the securities markets on which the Company’s securities are listed (including without limitation, the preliminary and final offering circulars of the debt financing instruments, and all announcements and circulars, etc. in relation to the issuance of the Company Onshore Debt Financing Instruments).
(3) selecting and engaging trustee manager(s) and settlement manager(s) for the issuance of the Company Onshore Debt Financing Instruments, signing the trustee agreement(s) and settlement management agreement(s) and (if applicable) formulating rules for meetings of the holders of the debt financing instruments.
(4) undertaking all applications and filings as well as listing matters in connection with the issuance of the Company Onshore Debt Financing Instruments, including without limitation, preparing, revising and submitting relevant application and filing materials relating to the issuance and listing of the Company Onshore Debt Financing Instruments and application and filing materials in respect of (counter) guarantee or letter of support to be provided by the Company, the issuer(s) and/or third party(ies), and signing the relevant application and filing documents and other legal documents.

– III-5 –

APPENDIX III PROPOSED GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

(5) making relevant adjustments to matters relating to the issuance of the Company Onshore Debt Financing Instruments according to the advice of and changes in the policies of regulatory authorities or the changes in market conditions, or determining whether to continue with all or part of the work in respect of the issuance of the Company Onshore Debt Financing Instruments in accordance with the actual conditions, unless re-approval by the shareholders at the general meeting is otherwise required pursuant to the relevant laws, regulations and the articles of association of the Company.
(6) dealing with other relevant matters in connection with the issuance of the Company Onshore Debt Financing Instruments.

The above authorization shall remain valid and effective on and from the date when it was approved and passed at the general meeting to the date when the resolution passed at the general meeting approving the Company Onshore Debt Financing Instruments ceases to be effective or to the date when matters authorized above have been completed (depending on whether the issuance of all the Company Onshore Debt Financing Instruments has been completed).

– III-6 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

As of the Latest Practicable Date, the share capital of the Company was as follows:

A Shares H Shares Total	Number of Shares 3,906,698,839 704,088,800 4,610,787,639	Approximate Percentage of Total Issued Shares of the Company 84.73% 15.27%
		100.00%

3. EXPERT AND CONSENT

The qualification of the expert providing opinions or advices in this circular is set out below:

Name of Expert Qualification Gram Capital Limited A licensed corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance

As of the Latest Practicable Date, the above expert has given and has not withdrawn its consent letter to the issuance of this circular with the inclusion of and/or references to its report or letter in the form and context in which they are included.

As of the Latest Practicable Date, the above expert did not own any equity interest in any member of the Group, or any right (whether legally enforceable or not) to subscribe or nominate others to subscribe for the securities of any member of the Group.

– IV-1 –

GENERAL INFORMATION

APPENDIX IV

As of the Latest Practicable Date, the above expert did not have interest in any assets which have been acquired or disposed of by, or leased to any member of the Group, or are proposed to be acquired or disposed of by, or leased to any member of the Group since December 31, 2017, being the publication date of the latest announced audited annual financial statements of the Group.

4. NO MATERIAL ADVERSE CHANGE

There was no material adverse change in the financial and operating conditions of the Group since December 31, 2017, being the publication date of the latest announced audited annual financial statements of the Group.

5. SERVICE CONTRACTS WITH DIRECTORS AND SUPERVISORS

The Company has entered into “Service Contracts with Directors” with 11 Directors of the Fifth Session of the Board of Directors and “Service Contracts with Supervisors” with 8 Supervisors of the Fifth Session of the Supervisory Committee. The term of office of the Directors and the Supervisors is from the date of approval of the resolution by the general meeting to the date of expiry of the term of the Fifth Session of the Board of Directors and the Fifth Session of the Supervisory Committee, respectively. The “Service Contracts with Directors” and the “Service Contracts with Supervisors” set out the agreed terms regarding the responsibilities within the terms and the terms of office of the Directors and the Supervisors.

Save as disclosed above, as of the Latest Practicable Date, none of the Directors or Supervisors had entered into or proposed to enter into any other service contracts with the Company or any member of the Group (excluding agreements that expire within one year or are terminable by the Group within one year without payment of compensation (other than the statutory compensation)).

6. DISCLOSURE OF INTEREST

(1) As of the Latest Practicable Date, none of the Directors or Supervisors of the Company had interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or have been proposed to be acquired or disposed of by or leased to any member of the Group since December 31, 2017, being the publication date of the latest announced audited annual financial statements of the Group.
(2) As disclosed in paragraph (5) below, certain Directors and Supervisors of the Company hold positions at the Everbright Group and Everbright Limited, a subsidiary of the Everbright Group. The Company and the Everbright Group entered into the 2016 Everbright Group Financial Products and Services Framework Agreement, which shall be valid until December 31, 2018.

– IV-2 –

GENERAL INFORMATION

APPENDIX IV

Save as this, none of the Directors or Supervisors of the Company had material interest in any contracts or arrangements subsisting as of the Latest Practicable Date and are significant in relation to the business of the Group.

(3) Except for the service contracts, the Company or the subsidiaries of the Company did not enter into any significant transactions, arrangements or contracts in which the Directors or Supervisors of the Company or their connected entities were still or had been materially interested either directly or indirectly during the Reporting Period.
(4) As of the Latest Practicable Date, Mr. Yin Lianchen, a non-executive Director of the Company, had personal interest of 26,000 shares of Everbright Limited, representing 0.00% of the total issued share capital of Everbright Limited. Everbright Limited is an associated corporation of the Company and its shares are listed on the Hong Kong Stock Exchange (stock code: 165).

Save as disclosed above, as of the Latest Practicable Date, 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 any of its associated corporations (within the meaning of Part XV of the SFO) which was 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 or short positions which any such Directors, Supervisors or chief executives of the Company are taken or deemed to have pursuant to the provisions of the SFO) or which was required to be entered into the register kept by the Company for record pursuant to the requirements of Section 352 of the SFO or which was required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers adopted by the Company.

(5) Mr. Ju Hao, a non-executive Director of the Company, is the director of the Everbright Group; Mr. Yan Jun, a non-executive Director of the Company, is the executive deputy director and officer of deepening reform of the Central Leading Group for Comprehensive Reforms of Everbright Group; Mr. Song Bingfang, a non-executive Director of the Company, is the deputy director of the office of the Board of Directors of Everbright Group; Mr. Yin Lianchen, a non-executive Director, is the chief investment officer and a member of the management decision committee, an executive director, a member of the executive committee and the strategy committee of Everbright Limited; Mr. Chan Ming Kin, a non-executive Director, is the chief legal advisor, a company secretary and a member of the investment decision committee of Everbright Limited; and Mr. Xue Keqing, a non-executive Director, is the chief financial officer and secretary to the board of directors of China State Construction Engineering Corporation Limited (“ CSCEC ”).

– IV-3 –

GENERAL INFORMATION

APPENDIX IV

Mr. Zhang Jingcai, a Supervisor of the Company, is the general manager of legal department of the Everbright Group; and Mr. Wang Hongyang, a Supervisor of the Company, is the deputy chief financial officer of Everbright Limited.

As of the Latest Practicable Date, the interests in the shares of the Company owned by the Everbright Group, Everbright Limited and CSCEC, which are required to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, have been recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

7. INTERESTS OF DIRECTORS IN BUSINESS CONSTITUTING COMPETITION WITH THE COMPANY

As of the Latest Practicable Date, none of the Directors or their respective close associates had interests in any business which constitutes direct or indirect competition or may constitute competition with the business of the Group.

8. MATERIAL LITIGATION

As of the Latest Practicable Date, no member of the Group was involved in any material litigation or arbitration and there was no material litigation or claim known to the Directors to be pending or threatened by or against any member of the Group.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Latham & Watkins located at the 18th Floor, One Exchange Square, 8 Connaught Place, Central, Hong Kong, during normal business hours from the date of this circular to November 14, 2018 (inclusive of the commencing and ending dates):

(1) the New Everbright Group Financial Products and Services Framework Agreement proposed to be renewed by both parties upon obtaining the approval from the Independent Shareholders at the EGM;
(2) the Letter from the Independent Board Committee;
(3) the Letter from Gram Capital;
(4) the service contracts with Directors and Supervisors referred to in the paragraph headed “Services Contracts with Directors and Supervisors” in this Appendix IV; and
(5) the Letter of consent from the expert referred to in the paragraph headed “Expert and Consent” in this Appendix IV.

– IV-4 –

AI assistant

Everbright Securities Company Limited — Proxy Solicitation & Information Statement 2018

50989_rns_2018-10-30_8b3cbe63-c692-4431-b396-bcb0b01859f1.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Everbright Securities Company Limited 光大證券股份有限公司

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Everbright Securities Company Limited 光大證券股份有限公司

(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS UNDER THE FRAMEWORK AGREEMENT

AND

(5) NOTICE OF 2018 SECOND EXTRAORDINARY GENERAL MEETING

I. INTRODUCTION

LETTER FROM THE BOARD

Ordinary Resolutions:

A. Securities and Financial Products Transactions

A.1 Scope

A.1.1 Scope of the Securities and Financial Products Transactions

2016 Everbright Group Financial New Everbright Group Financial Products and Services Framework Products and Services Framework Agreement Agreement

New Everbright Group Financial Products and Services Framework Agreement

A.2 Pricing Basis of the Securities and Financial Products Transactions

LETTER FROM THE BOARD

(2) Securities and financial products traded on the exchanges

A.3 Pricing Approval and Supervision of the Securities and Financial Products Transactions

LETTER FROM THE BOARD

A.4 History Transaction Amounts of the Securities and Financial Products Transactions

A.5 Proposed Annual Caps of the Securities and Financial Products Transactions for the Three Financial Years Ending December 31, 2021

LETTER FROM THE BOARD

A.5.3 Basis of determination of the proposed annual caps

General factors

1. The financial market in the PRC will continue to develop and new securities and financial products will constantly be issued

2. Increasing cooperation between the securities companies and the banks and investments in each other’s financial products

LETTER FROM THE BOARD

3. Rapid growth of business scale of the Everbright Group and the synergistic strategy

4. Expansion of the Group’s business scope and introduction of innovative products

Specific factors and considerations

LETTER FROM THE BOARD

A.6 Maximum Daily Balance of Deposits and Waiver

In terms of the Group’s proprietary funds:

• Margin financing and securities lending business :

• Underwriting business :

• Private equity investment:

• Proprietary trading:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

B. Securities and Financial Services

B.1 Scope of the Securities and Financial Services

2016 Everbright Group Financial New Everbright Group Financial Products and Services Framework Products and Services Framework Agreement Agreement

2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

2016 Everbright Group Financial Products and Services Framework Agreement

New Everbright Group Financial Products and Services Framework Agreement

B.2 Pricing Basis of the Securities and Financial Services

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

B.3 Pricing Approval and Supervision of the Securities and Financial Services

B.4 Historical Transaction Amounts of the Securities and Financial Services

B.5 Proposed Annual Caps of the Securities and Financial Services for the Three Financial Years Ending December 31, 2021

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

D. Implications of the Hong Kong Listing Rules

D.1 Connected persons involved

Connected person Relationship with the Group

D.2 Implications of the New Everbright Group Financial Products and Services Framework Agreement under the Hong Kong Listing Rules

E. General Information

E.1 Information about the Everbright Group

LETTER FROM THE BOARD

E.2 Information about the Group

Everbright Securities Company Limited Proxy Solicitation & Information Statement 2018