09:54 BOC HONG KONG<02388> - Announcement (2) Background To The Continuing Connected Transactions The Group conducts Continuing Connected Transactions with BOC and its associates in the ordinary and usual course of its business on normal commercial terms. BOC indirectly controls over 60% of the issued shares of the Company and is a substantial shareholder of the Company, and therefore it and each of its associates is a connected person of the Company under the Listing Rules. Pursuant to the Services and Relationship Agreement, BOC has agreed to, and agreed to procure that its associates, enter into all future arrangements with the Group on an arm's-length basis, on normal commercial terms and at rates no less favourable than those offered to independent third parties, in relation to certain areas including, among others, information technology services, training services, physical bullion agency services, correspondent banking arrangements, treasury transactions, provision of insurance and syndicated loans. Pursuant to the same agreement, the Company has agreed to, and agreed to procure that its subsidiaries, enter into all future arrangements on the same basis, provided that the rates offered by the Group to BOC and its associates will be no more favourable than those offered to independent third parties. The Continuing Connected Transactions are governed by the Services and Relationship Agreement and/or other specific agreements. Rule 14A.35(1) requires a continuing connected transaction to be governed by written agreement(s) for a fixed term not exceeding three years, except in special circumstances. The Group entered into supplemental agreements in November 2004 to require that the relevant Continuing Connected Transactions all have a term not exceeding three years. Particulars of The Continuing Connected Transactions Details of the Continuing Connected Transactions and the New Caps are set out below. Note that certain transactions were not separately accounted for prior to the IPO of the Company in 2002 and hence no comparable data for the year 2001 in respect of such transactions is available. With the emergence of new financial products and increasing popularity of wealth management in Hong Kong, the Company expects substantial growth in the volume of securities transactions, funds distribution and insurance agency services in the next few years. With respect to credit card services, the Company anticipates rapid expansion of the use of credit cards in China over the next few years and corresponding large increases in related income. The volume and aggregate value of foreign exchange and interbank capital markets transactions vary from time to time and year to year. Furthermore, references to previous figures for these transactions may not be a fair indication of the expected value of such transactions for the next three years. 1. Securities Transactions BOCI Securities provides securities brokerage services for the Group and its customers. The Group pays a commission, net of a rebate based on a fixed portion of the gross commission, to BOCI Securities. In future, the compensation structure may be changed by the parties through arm's length negotiation and such changes may include the basis on which the commission is calculated, provided that such commission shall always be on normal commercial terms. In addition, since 2004, the Group has distributed various securities products issued by BOCI and its associates such as equity linked instruments, structured notes, bonds and other financial products as their agent on the basis of a commission with reference to market rates. The table below sets out the historical commissions (net of rebate) and revenues and the New Caps for the securities transactions described above: (HK$ million) 2001 2002 2003 Historical commissions (net of rebate) 119 82 118 and revenues 2005 2006 2007 New Caps 180 220 260 2. Fund Distribution Transactions The Group promotes and sells various fund products, including guaranteed