1. 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

On 29 October 2007, the Thailand Futures Exchange (TFEX) was launched
its second listed product, i.e. the SET50 Index Options, following the
SET50 Index Futures. Still, the Company maintains its competitive
strength by using the experience and advice of KGI Futures Co., Ltd, a
one of leading players in Taiwan market, and was able to offer high
quality service to its clients since 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 2007, the Company has receivables due from brokerage
services to clients totaling Baht 629 million and credit balance loans
totaling Baht 1,194 million.

4)  Interest rate risk

As of 31 December 2007, 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 2007, 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, and the Company has entered into a forward exchange contracts
to hedge investment in securities of that subsidiary company of USD 10
million with a strike price of Baht 33.645 per 1 US dollar.

6)  Liquidity risk

The Company has adequate liquidity. As of 31 December 2007 the company
had cash and cash equivalents totaling Baht 1,266 million, and it had
Baht 240 million long term deposits at financial institutions. The
Company’s net capital ratio (NCR) was 188.58 %.

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 2007, the Company’s net investment in debt and equity
securities was Baht 3,931 million (81% in net short term investments,
19% 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 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.

10) Risk from having a major shareholder

As of 29 March 2007 (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.

11) 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 2007,
there were no shares held by the Thai Trust Fund and investors had
bought only 127,051,806 NVDRs shares (equivalent to 6.38% of paid-up
capital). (See details of Thai Trust Fund and NVDRs in no. 8 Capital
structure)

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.