Zhejiang Huatong Meat Products Co.Ltd(002840)
Internal control system of hedging business
Section I General Provisions
Article 1 in order to make scientific and rational use of futures, options and other financial instruments, give full play to the role of hedging in avoiding risks and optimizing costs in the process of raw material procurement and product sales, and prevent business risks, in accordance with the relevant futures and options hedging trading rules of commodity exchanges, the securities law of the people’s Republic of China and the stock listing rules of Shenzhen Stock Exchange This system is formulated in accordance with the self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board and Zhejiang Huatong Meat Products Co.Ltd(002840) articles of association. Article 2 this system is applicable to the company and its subsidiaries within the scope of consolidated statements. If the company’s joint-stock company carries out hedging, which has a great impact on the company’s performance, the company shall perform the obligation of information disclosure with reference to the relevant provisions of this system. Article 3 the hedging business must abide by the following basic principles: (I) the company may conduct commodity futures and options hedging business for the purpose of avoiding commodity price risk in production and operation, and shall not conduct transactions for the purpose of speculation; The hedging business of foreign exchange, interest rate and other financial products conducted by the company shall be implemented with reference to this system; (II) futures, options and related OTC options for the company’s hedging business are limited to the production and operation of relevant products or required raw materials; (III) when the company conducts hedging business, the number of positions established and the holding time shall, in principle, match the number and time period of actual spot transactions. The futures position shall not exceed the hedged spot quantity, and the corresponding futures position shall not exceed the time specified in the spot contract or the actual execution time of the contract in principle; (IV) the company shall establish a hedging transaction account in the name of the company and shall not use the account of others for hedging business; (V) the company shall have its own funds matching the transaction guarantee of commodity futures and options hedging business, and shall not use the raised funds to conduct hedging business directly or indirectly. The company shall strictly control the capital scale of hedging business and shall not affect the normal operation of the company.
Section II Organization and approval process of hedging business
Article 4 the board of directors of the company authorizes the establishment of the hedging leading group of the company, and the general manager of the company shall act as the leader of the hedging leading group to organize the specific implementation of hedging business. All hedging businesses must be strictly limited to the approved hedging plan and shall not operate beyond the scope. Article 5 where the company intends to conduct hedging business, the hedging leading group shall issue a feasibility analysis report on the hedging business and submit it to the board of directors for deliberation and approval. The company may employ a consulting agency to issue a feasibility analysis report on the hedging business of the company. Article 6 the hedging leading group shall make decisions on futures and options business in the form of meeting, which shall be approved by more than 2 / 3 of the members. The specific responsibilities of the main personnel are as follows: (I) the general manager of the company: the person in charge of the hedging leading group, who is fully responsible for the hedging work and convenes and presides over the hedging leading group meeting; Examine and approve (or authorize the examination and approval) the hedging transaction scheme; Be responsible for the emergency treatment of transaction risks. (II) general manager of business unit: as the first person responsible for the specific hedging business, he is responsible for organizing the design of specific strategic direction, formulating relevant plans and feasibility analysis reports, and submitting them to the hedging leading group of the company for review. Make decisions on hedging schemes within the authorized limit. (III) financial manager of business unit: responsible for the offer of capital scale of hedging business of relevant business unit and the execution of daily hedging business. Implement hedging business within the approved and authorized authority. (IV) chief financial officer: specifically implement the business processing in the hedging business statement and carry out accounting. (V) person in charge of internal audit: inspect and supervise the compliance of commodity hedging business. (VI) the above authority division implements the vertical management mode of strategy implementation audit and independent financial control to avoid ultra vires disposal and ensure the independence of financial supervision and management. Article 7 the hedging business process of the company is as follows: (I) each business unit reports the commodity hedging business needs to the general manager of the business unit according to its own needs, and the general manager of each business unit reports to the person in charge of the hedging business leading group of the company according to the company’s own procurement needs. (II) the hedging leading group of the company analyzes the demand of commodity hedging business and hedging scheme in combination with the market price, and deliberates and authorizes the amount within the scope of authorization approved by the board of directors. (III) after the hedging plan is approved, the financial manager of the business unit shall carry out follow-up coordination and prepare funds according to the specific implementation of the approved plan. (IV) the hedging leading group shall appoint traders to carefully and accurately issue trading orders according to the specific futures and options hedging scheme and the current market. After the end of daily trading, the trader shall timely deliver the transaction details, settlement and the bill sent by the brokerage company to the financial manager of the business unit. The financial manager of the business unit shall track the relevant summary sheets or vouchers of the hedging business according to the progress of the transaction, check the margin balance every month, and transfer it to the chief financial officer for accounting treatment. (V) when the risk reserve fund is insufficient due to abnormal price fluctuation and needs additional increase: the financial manager of the business unit shall timely formulate a solution to close the position or increase the margin, which shall be implemented after being approved by the hedging leading group of the company; If the approval process cannot be completed and the funds can not be added in place before the time limit for the futures company to require additional margin, the general manager of the business unit and the general manager of the company can decide to close the position or add margin immediately, and report to the hedging leading group in time afterwards. (VI) according to the actual situation, if the company needs to conduct physical delivery to settle the futures position, it shall properly coordinate with relevant parties in advance to ensure that the delivery is completed on schedule. Article 8 if the fair value impairment of the company’s traded derivatives and the change in the value of assets (if any) used for risk hedging add up, resulting in the loss amount reaching or exceeding 10% of the company’s audited net profit attributable to shareholders of the listed company in the latest year and the loss amount reaching or exceeding RMB 10 million, the company shall disclose it in time.
Section III Risk Management System
Article 9 the hedging leading group of the company shall carry out the following risk management work on hedging business: (I) formulate risk management policies and management procedures related to domestic futures business; (II) supervise the implementation of risk management policies and risk management procedures by relevant personnel of domestic futures business; (III) review the credit status of domestic brokerage companies; (IV) review the company’s specific hedging plan; (V) check whether the trading behavior of traders conforms to the hedging plan and specific trading scheme; (VI) monitor and evaluate the risk status of futures option positions to ensure the normal hedging process;
(VII) discover, report and handle risk accidents according to procedures; (VIII) assess, prevent and resolve the legal risks of the company’s domestic futures business. Article 10 the general manager of each business unit shall track and understand the development changes and credit status of domestic brokerage companies, and report the relevant development changes to the hedging leading group of the company, so that the company can select or replace brokerage companies according to the actual situation.
Article 11 each business unit shall determine and control the hedging amount of the current period according to the actual production capacity in different months, and shall not hedge beyond the scope authorized by the hedging leading group at any time. Article 12 when the company has confirmed the hedging of physical contracts, the establishment and closing of futures positions shall match the quantity and time of the hedged physical contracts. Article 13 the company establishes a risk measurement system as follows: (I) capital risk: calculate the amount of margin occupied, floating profit and loss, the amount of available margin, the amount of margin required for the proposed position, and the amount of margin prepared by the company for possible additional margin; (II) risk of price change of hedging position: calculate the margin demand and profit and loss risk of established positions and positions to be established after price change according to the company’s hedging scheme. Article 14 the company shall establish the following internal risk reporting system and risk handling procedures: (I) internal risk reporting system: when the market price fluctuates greatly or abnormally, the trader shall immediately report to the financial manager and general manager of the business unit, and the general manager of the business unit shall further report relevant information to the person in charge of the hedging leading group; The risk management department shall notify the Securities Department of relevant information disclosure according to the actual situation. (II) risk handling procedures: (1) the person in charge of the hedging leading group of the company shall timely convene relevant personnel to analyze and discuss the risk situation and Countermeasures to be taken, and convene the board of directors for decision-making when necessary; (2) Relevant personnel shall implement the company’s risk treatment decisions. Article 15 the company’s handling procedures for trading wrong orders: (I) in case of wrong orders due to the fault of the futures brokerage company: the trader shall notify the futures brokerage company, and the futures brokerage company shall take corresponding handling measures for wrong orders in time, and then recover the direct losses from the futures brokerage company; (II) in case of wrong orders due to the fault of the company’s traders, the traders shall take corresponding instructions, which are required to eliminate or minimize the losses caused to the company by wrong orders.
Article 16 the company shall reasonably plan and arrange the use of margin to ensure the normal hedging process. The hedging month should be reasonably selected to avoid market liquidity risk; Article 17 the company shall arrange and use domestic futures practitioners in strict accordance with the regulations, strengthen the professional ethics education and business training of relevant personnel, and improve the comprehensive quality of relevant personnel. Article 18 the company shall set up trading, communication and information service facilities and systems that meet the requirements to ensure the normal operation of the trading system and the normal development of trading work. Article 19 the audit committee of the board of directors, the board of supervisors and independent directors may inspect the use of hedging business funds under the condition of ensuring the confidentiality of the company. On the basis of the inspection of the company’s internal audit department, the audit committee of the board of directors shall focus on the verification. If necessary, more than two independent directors shall propose to appoint an independent external audit institution to conduct special audit of funds. If illegal operations or other risks are found, the board of directors can be proposed to consider stopping the hedging business of the company.
Section IV confidentiality system
Article 20 the relevant personnel of the company’s futures business shall abide by the company’s confidentiality system. Article 21 the relevant personnel of the company’s futures business shall not disclose the company’s hedging plan, trading situation, settlement situation, capital status and other information related to the company’s futures trading without permission.
Section V supplementary provisions
Article 22 this system shall come into force after being deliberated and approved by the board of directors of the company, and the same shall apply when it is revised. Article 23 the board of directors of the company shall review and revise the system according to the actual needs to ensure that the system can adapt to the actual operation and new risk control needs. Article 24 the board of directors of the company shall be responsible for the interpretation of this system.
Zhejiang Huatong Meat Products Co.Ltd(002840) March 22, 2022
