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Proprietary trading

Proprietary Trading

We engage in the trading of stocks, bonds, funds, derivatives and other financial products permitted by the CSRC through proprietary funding for our own account based on our risk management policies and market conditions.

We emphasize prudent operation and value investing in our equity trading and aim to achieve stable returns while minimizing risks. We formulate our investment strategy annually which determines the investment scale and risk exposure for our proprietary trading activities, based on our financial condition, stock research and market conditions. Since 2012, in addition to our annual investment strategy meeting, we have convened investment strategy meetings on a quarterly basis to reassess and adjust our maximum risk exposure and investment scale as well as industry focus in our equity trading for the next quarter. In addition, we also call special meetings to adjust our investment strategies following any material changes in market conditions. Since 2012, we have adopted more stringent stop-loss procedures, including imposing stop-loss point for a single equity security. Our maximum risk exposure in equity trading activities represents the maximum allowable loss (both realized loss and fair value loss) in our trading activities determined by our Board during a period. We are required to gradually reduce our investment positions to stop loss when the loss on our equity investments exacerbates. When our investment loss approaches our maximum risk exposure, we will commence liquidating our equity positions to avoid reaching our maximum risk exposure.

In order to control the market risk relating to our proprietary equity trading, we engage in hedging activities through trading in CSI 300 Index futures that are traded on the China Financial Futures Exchange. We determine the scale of stock index futures we buy or short-sell based on the positions we hold in equity securities. By engaging in such hedging activities using CSI 300 Index futures, we can effectively reduce the volatility of our securities portfolio, and enhance the stability and reliability of our proprietary trading activities.

We believe that our investment and hedging strategies have generally been effective, considering that (i) our annual returns on equity investments outperformed the CSI 300 Index during the Track Record Period, and (ii) our proprietary trading activities were conducted well within our authorized maximum risk exposure during the Track Record Period.