1. Risks

1)  Market Risk and Competition risk of Brokerage business and Futures
    business

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 and structured products.

2) Credit Risk and Settlement 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 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 2008, the Company has receivables due from brokerage
services to clients totaling Baht 291 million and credit balance loans
totaling Baht 535 million.

3)  Interest rate risk

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

As of 31 December 2008, the Company had no loans from financial
institutions. However, the Company has deposits and invested in fixed
income instruments and the return or values of those are sensitive to
interest rate movements.

4)  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 2008, 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.

5)  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 2008 the company
had cash and cash equivalents totaling Baht 1,917 million, and it had
Baht 29 million long term deposits at financial institutions. The
Company’s net capital ratio (NCR) was 425.64 %.

6) 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 2008, the Company’s net investment in debt and equity
securities was Baht 2,768 million (72% in net short term investments,
28% in net long term investments).

7)  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.

8) 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.

9) Risk from having a major shareholder

As of 24 March 2008 (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.

10) 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 2008,
there were no shares held by the Thai Trust Fund and investors had
bought only 136,763,506 NVDRs shares (equivalent to 6.87% of paid-up
capital). (See details of Thai Trust Fund and NVDRs in no. 8 Capital
structure)

11) 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.