2. Risks

2.1 Company Risks

1)  Market Risk

  Market risk refers to the risk that the trading volume of the market
  has changed and has a direct impact on the Company’s revenue. Factors
  causing market price and volume volatility include political
  developments, economic outlook, and investors’ sentiment (both
  domestic and international). The Company has carried out a policy of
  diversifying its business by sustaining and expanding its market
  share. Furthermore, the Company has a policy to earn revenue from its
  other businesses such as securities dealer, investment banking, fixed
  income, Private Repo, Selling Agent of Unit Trust, futures, securities
  borrowing and lending, OTC derivative, and derivatives warrants.

2) Competition Risk in securities broker business

  The securities broker business is highly competitive, especially as
  the Stock Exchange of Thailand will change its policy on brokerage
  commissions to a cascade calculation. The commission will vary based
  on trading volume, during 1 January 2010 to 31 December 2011. If the
  Company is unable to maintain a high quality of service compared to
  other brokers, it may lose its market share. Therefore, the Company
  has a policy to continually enhance the efficiency of its staff in
  giving advice and service to clients. The Company also has always
  developed its research and expanded with new businesses to give more
  convenience to clients and offer investment alternatives.

3) Credit Risk

  Credit risk refers to the risk that a counter party will default on
  its contractual obligations, resulting in a financial loss to the
  Company and its subsidiary companies.

  The Company is exposed to credit risk primarily with respect to
  securities and derivatives business receivables, loans and other
  accounts receivable. The Company’s management controls such risk by
  establishing credit limits for customers and counter parties and
  analyzing their financial position as an ongoing basis. As a result,
  the Company does not expect to incur material financial losses.

  The Company is not exposed to concentrations of credit risk because it
  has a variety of customer base and large number of customers. The
  maximum exposure to credit risk is limited to the carrying amount of
  securities and derivatives business receivables, loans, other
  receivables as stated in the balance sheet.

As of 31 December 2009, the Company has receivables due from brokerage
services to clients totaling Baht 666.28 million and credit balance
loans totaling Baht 407.32 million.

4)  Interest rate risk

  Interest rate risk is the risk that future fluctuations in market
  interest rates will affect the operating result and cash flows of the
  Company and subsidiary companies.

  The exposure to interest rate risk of the Company and its subsidiary
  companies relate primarily to their cash at banks, long-term
  investments in debt securities and borrowings. However, because most
  of the financial assets and liabilities carry floating interest rate
  which will fluctuated in line with the market interest rates or carry
  fixed interest rate which approximate the current market interest
  rate, the Company and its subsidiary companies do not use derivatives
  to manage their interest rate risk.

  As of 31 December 2009, the Company had borrowings of Baht 340.00
  million, long-term deposits at financial institutions of Baht 131.07
  million and the Company also has invested in fixed income instruments
  and the return or values of those are sensitive to interest rate
  movements.

5) Exchange Rate risk

  Foreign currency risk is the risk that the value of a financial
  instrument will fluctuate because of changes in foreign exchange
  rates. As of 31 December 2009, the Company has investments in
  subsidiary companies in foreign currency under cost method of USD 59.4
  million (equivalent to Baht 2,383 million). However, the Company also
  has obtained Thai Baht loans from a subsidiary company totaling Baht
  1,700 million.

  As at 31 December 2009, the Company and its subsidiaries has not
  entered into any forward exchange contracts to manage its foreign
  exchange risk.

6) Liquidity risk

Liquidity risk is the risk that the Company and its subsidiaries will be
unable to liquidate financial assets and/or procure sufficient funds to
discharge obligations in a timely manner, resulting in a financial loss.

  The Company has adequate liquidity. As of 31 December 2009 the company
  had cash and cash equivalents totaling Baht 208.91 million, and it had
  Baht 131.07 million long-term deposits at financial institutions. The
  Company’s net capital ratio (NCR) was 208.04% (the Securities and
  Exchange Commission defines the NCR should be maintained at least 7%
  of liabilities).

7) Securities investment risk and return risk

Securities investment risk and return risk refer to the risk that the
Company has been wrong to expect its return. The Company has assigned
its Risk Management Committee to set strict guidelines and policies
regarding asset allocation, portfolio limits and risk control in order
to manage risk of losses due to market volatility.

As of 31 December 2009, the Company’s net investment in debt and equity
securities was Baht 5,425.58 million (86% in net short term investments,
14% in net long term investments).

8)  Risk from investment in subsidiaries and associated companies

This type of risk may arise if the subsidiaries and associate companies
incur losses which have an effect on the Company’s performance. The
Company’s investments in subsidiaries and associated companies are
accounted for under the equity method.

9) Risk from investment banking business

In operating an investment banking business, including an underwriting
business, there is a risk of losses from unsubscribed securities that
must be transferred to the Company’s portfolio. Inappropriate size or
pricing of issues, unexpected fluctuations of the stock market, interest
rates or foreign exchange rates can cause the investors not to subscribe
for such securities. To reduce such risk, the Company studies and
analyzes information regarding the issuer and the interest of clients or
investors. In the financial advisory business, the Company always
studies clients carefully and conducts due diligence before entering
deals.

10) Risk from having a major shareholder

As of 20 March 2009 (the last registration close book date), the KGI
Group owned approximately 34.97% of the Company’s total shares. KGI
Group as a major shareholder may exercise greater influence over the
Company’s management and business policies. However, if the KGI Group
wishes to hold more than 50% of the Company, it still needs to seek
approval from relevant government agencies.

11) Risk from establishing a Thai Trust Fund and having a Non-Voting
Depository Receipts (NVDRs)

Since investors in the Thai Trust Fund and NVDR holders have no voting
rights, this effectively leads to a decrease in the number of voting
shares. As a result, major shareholders may have an increased level of
control over the company. However, as of 31 December 2009, there were no
shares held by the Thai Trust Fund and investors had bought only
150,223,776 NVDRs shares (equivalent to 7.54% of paid-up capital).

12) Risk related to Derivatives products

Having taken into consideration various risks involved in derivatives,
the Company has approved the Equity Derivatives Department and Fixed
Income Department to sell derivative products to clients. However, the
Risk Management Committee has to first approve the document called
“Product Program” before the Equity Derivatives Department and Fixed
Income Department can issue derivatives to clients. The Product Program
mainly focuses on (1) characteristics of securities, services, and
target clients; (2) risk policies such as acceptable level of loss and
other risk policies depending on attributes of securities and services
offered to clients; and (3) internal operational procedures including
internal control.

The Risk Management Department monitors the Company’s exposure on a
daily basis to ensure compliance with the approved risk policies. The
Company is therefore confident that it has put in place a system for
limiting risks associated with derivatives to an acceptable minimal
level.

2.  Risk factors related to Derivative Warrants (DW)

In 2009, the Company was the first and only securities company in
Thailand launching Derivative Warrants (DW). The risks related to DW are
as follows.

1)  DW constitute general unsecured contractual obligations of the
    Company and of no other person and will rank equally with the
    Company’s other general unsecured contractual obligations.

2) The price of DW issued by the company may fall in value rapidly and
may rise rapidly. DW holders may lose all of their investment in a DW.
Before investing, selling, or exercising the DW, DW holders should
carefully consider, among other things,

1.  Trading price of the DW

2.  Trading price of the underlying asset

  - Generally, when the price of the underlying asset decreases, the
  price of a call DW may decrease

  - Generally, when the price of the underlying asset increases, the
  price of a call DW may increase

  2.3) Volatility of the underlying assets

  - Generally, when the volatility of the underlying asset decreases,
  the price of a call DW may decrease

  - Generally, when volatility of the underlying asset increases, the
  price of a call DW may increase

  2.4) Time to maturity of a DW and last trading date of a DW

  - Generally, as the time to maturity of a DW decreases, the price of a
  call DW may decrease

  - Generally, when time to maturity of a DW increases, the price of a
  call DW may increase

  2.5) Interest rates

  - Generally, when interest rates decrease, the price of a call DW may
  decrease

  - Generally, when interest rates increase, the price of a call DW may
  increase

  2.6) Dividend of the underlying company

  - Generally, when dividend of the underlying company decreases, price
  of call DW may increase

  - Generally, when dividend of the underlying company increases, price
  of call DW may decrease

  2.7) The liquidity of the underlying asset, the liquidity of DW and
  the market making obligation of the Market Maker of DW

  2.8) Trading commission, exercise expenses, and other related expenses
  of trading DW

  2.9) The credit and financial status of the Issuer

3) If the Exchange issues an order temporarily prohibiting the purchase
or sale of securities by posting the “H” (Halt) or “SP” (Suspension)
sign on the board of the underlying security of the DW, the Exchange
shall also issue an order to prohibit the purchase or sale of the DW.

4) The price of the underlying asset may change for many reasons
including corporate action of the underlying company, performance of the
underlying company and market situation. In some events such as
corporate action, the Company may adjust the exercise price and the
exercise ratio of the DW. However, if there is a corporate action and
the Issuer decides not to make any adjustment, the price of DW may be
affected by the corporate action.

5) An investment in a DW is not the same as owning the underlying asset
or having a direct investment in the underlying asset. The change in the
value of the DW may be disproportionate to or opposite to the change in
value of the underlying asset. DW holders have no right to the
underlying asset or, for example, voting rights or rights to receive
dividends.

6) On maturity, DW holders may receive the Net Cash Settlement later
than normal if there is a Market Disruption Event,

  6.1) If the Market Disruption Event occurs before or on the Last
  Trading Date and ends within 30 days after Maturity Date, the
  Settlement Price shall be the Closing Price of the Underlying Asset on
  the first trading day after the Market Disruption Event ends.

  6.2) If the Market Disruption Event occurs on or before the Last
  Trading Date and ends not less than 30 days after Maturity Date,

  - The Issuer shall announce the Fair Value of the Underlying Asset
  within 20 days or 30 days after the Maturity Date

  - The Issuer shall use the Fair Value of the Underlying Asset
  calculated by a Financial Advisor approved by the SEC and made not
  more than 50 days before the date that the Issuer informs the market
  of the Fair Value. The Fair Value of the Underlying Asset shall be
  deemed to be the Settlement Price.

  If the Settlement Price is greater than Exercise Price, the Issuer
  will pay the Net Cash Settlement to the Holder’s bank account or send
  a crossed cheque to the registered Holder on the Automatic Exercise
  Date. It shall be sent by registered mail within 5 business days
  following the day that the Issuer determines the Fair Value or the
  Settlement Price.

7) DW Holders may be required to pay taxes including tax on the Net Cash
Settlement from the exercise

Not all of the risk factors described above will necessarily be
applicable to a particular DW. Please consider all risks carefully prior
to investing in any DW. Please carefully read the Terms and Conditions
of the DW. DW investors should be confident they understand all related
risks before investing in a DW.