Risks

1)  Market Risk and Competition risk of the Stock Exchange

  The trading volume of the market and the Company’s market share have a
  direct impact on KGI’s revenue. Factors that cause market price and
  volume volatility include political situation, economic outlook, and
  investors’ sentiment (both domestic and international). In addition,
  the securities business is highly competitive. If the Company is not
  able to maintain a high quality of service compared with other
  brokers, it may lose market share. In this regard, the Company has
  implemented a policy of increasing marketing officers’ ability to
  provide good recommendations and increase value-added services to
  clients. In addition, the Company has carried out a policy of
  diversifying its business by developing new products such as stock
  borrowing and lending, OTC derivative, structured products and futures
  business.

2) Market Risk and Competition risk of Futures Business

  The Thailand Futures Exchange (TFEX) was launched on 28 April 2006
  with the SET50 Index Futures as the first product. In order to develop
  futures business, the Company increased its competitive strength by
  using the experience and advice of KGI Futures Co., Ltd, a leading
  player in Taiwan market, and was able to offer high quality service to
  its clients as soon as the TFEX market opened. Since trading
  derivatives involves significant risks, the Company has established
  strict procedures for controlling the risks in futures trading. These
  include requiring the individual clients to place sufficient
  collateral before any futures trading.

3)  Credit Balance, Futures and Settlement Risk

  The Company has assigned its Risk Management Committee to review and
  approve the Company’s policy on risk management in credit balance
  accounts, credit line approval guideline, collateral management and
  valuation guidelines, IT systems, and the overall policy and strategy
  in managing the company’s risk. Therefore, the Company believes that
  it can minimize its risk from credit balance, and futures accounts and
  from settlement risk.

  As of 31 December 2006, the Company has receivables due from brokerage
  services to clients totaling Baht 381million and credit balance loans
  totaling Baht 917million.

4)  Interest rate risk

  As of 31 December 2006, the Company had no loans from financial
  institutions. However, the Company has invested in fixed income
  instruments and the values of those are sensitive to interest rate
  movements.

5)  Exchange Rate risk

  As of 31 December 2006, the Company has investments in subsidiary
  companies in foreign currency under equity method of USD 60 million
  (equivalent to Baht 2,508 million). However, the Company has obtained
  Thai Baht loans from one of those subsidiaries totaling approximately
  Baht 1,720 million. As at 31 December 2006, the Company has not
  entered into any forward exchange contracts to manage its foreign
  exchange risk.

6)  Liquidity risk

  The Company has adequate liquidity. As of 31 December 2006 the company
  had cash and cash equivalents totaling Baht427million, and it had Baht
  118million long term deposits at financial institutions. The Company’s
  net capital ratio (NCR) was 39.20%.

7)  Securities investment risk and return risk

  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. On 31 December 2006 the Company’s net investment in debt
  and equity securities was Baht 3,397million (76% in net short term
  investments, 24% in net long term investments).

8)  Risk from investment in subsidiaries and associated companies

  This type of risk may arise if the subsidiaries and associates
  companies incur losses. The company’s investments in subsidiaries and
  associated companies are accounted for under the equity method.

9)  Risk from expanding branch network

  The opening of new branch involves risks, primarily by increasing the
  company’s fixed and variable costs. However, the Company had a
  thorough review process before establishing new branches. A
  feasibility analysis was first conducted, in which the population,
  economic position and prospects, and the number of competitors
  operating in such areas were considered. A profit-loss projection was
  made together with a study on the impact of the establishment of the
  new branch on the maintenance of the net capital adequacy of the
  Company. The Company did not open any new branch in 2006.

10) Risk from operating underwriting and financial advisory businesses

  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 study clients carefully and conduct due diligence
  before entering deals.

11) Risk from having a major shareholder

  As of 30 March 2006(the last registration close book date), the KGI
  Group owned approximately 34.98% 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.

12) Risk from establishing a Thai Trust Fund and having a Non-Voting
    Depository

  Receipts (NVDRs)

  Since the investors in the Thai Trust Fund and NVDRs 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 2006,
  there were no shares held by the Thai Trust Fund and investors had
  bought only 107,154,968 NVDRs shares (equivalent to 5.38% of paid-up
  capital). (See details of Thai Trust Fund and NVDRs in no. 8 Capital
  structure)

13) 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.