2. Risks

2.1 Company Risks

  1) Market risk

  Market risk refers to the risk that fluctuations in market trading
  volumes and interest rates will directly impact on the Company’s
  revenue. Factors causing volatility in market trading volumes and
  interest rates include political developments, the economic outlook,
  and domestic and investor sentiment, both domestically and
  internationally.

  A variety of tools are used to implement comprehensive measurement and
  analysis of market risk. For example, Value-at-Risk is used to measure
  the potential loss on investment given a certain time horizon and
  level of probability, and stress testing is implemented to evaluate
  the robustness of a company in any given stress scenarios. These
  analytical tools provide a picture of the Company’s potential future
  losses. Moreover, the Company assesses the losses potential resulting
  from market losses and manages them sets stop loss limits and position
  limits that are appropriate to current market conditions, which change
  over time.

2) Risk from Competition in securities broker business

  The securities broker business is highly competitive, especially as
  the Stock Exchange of Thailand changed its policy on brokerage
  commissions to a cascade calculation. The commission will vary based
  on trading volume, during 1^(st) January 2010 to 31^(st) December
  2011. Also, the brokerage commission fee would be fully negotiable
  between brokers and members by January 2012. 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) Risk from Dependence on Major Client

As of 31^(st) December 2011, the Company did not have dependence income
on any clients more than 30% of total income. The Company has
continuously planed to expand client base both in retail and
institutional clients and both in local and foreign. In 2011, the
Company had opening trading account increased 13% comparing to the
previous year which reduce risk from dependence on major or minor
clients.

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. (see details of interest of asset
  and liabilities in note of financial statement no. 39.2)

5) 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
analysing 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 statements of financial position. As of
31^(st) December 2011, the Company has its securities and derivatives
business receivables-net of Baht 2,387 million.

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.

  When the Company is to launch a new product, it assesses the impact to
  its liquid capital by estimating its net capital ratio after the
  product is launched using a stress test technique, and takes this
  information into consideration in determining the appropriate size of
  the product issue.

  The Company has a policy to maintain a Net Capital Rule and a Net
  Capital Ratio (NCR) that are higher than the requirements under the
  SEC regulations, which specified that the Net Capital Rule must be at
  least Baht 25 million and the Net Capital Ratio must be at least 7% of
  liabilities and guarantees. As of 31 December 2011, the Company’s Net
  Capital Rule is Baht 4,059 million and its Net Capital Ratio (NCR) is
  328%

7) Foreign exchange 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 2011, 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 those subsidiary companies totaling Baht
2,199 million.

As at 31 December 2011, the Company and its subsidiaries has not entered
into any forward exchange contracts to manage its foreign exchange risk.

8) Risk from Securities investment and return

  Risk from Securities investment and return is the risk that the
  Company may not get return from investment as its expectation.

  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 and controlling risk limit on a daily basis. Risk
  Management Committee will reviewed on a regular basis to consistent
  with market condition from time to time.

9)  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. The Company
  appointed persons to be directors for setting policies of its
  subsidiaries.

10) Risk from investment banking business

  In operating an investment banking business, in the 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. The Company also set up the Investment Banking
  Sub-committee to responsible for approving underwriting deals and
  other investment banking businesses.

11) Risk from having a major shareholder

  RICHPOINT COMPANY LIMITED (100% owned by KGI Securities Company
  Limited, Taiwan), is the Company’s major shareholder, owning
  approximately 35% of the Company’s shares as of 12^(th) March 2012
  (the last registration close book date). A major shareholder may
  exercise greater influence over the Company’s management and business
  policies. However, if A major shareholder wishes to hold more than 50%
  of the Company, it still needs to seek approval from relevant
  government agencies.

The company abides with good Corporate Governance. Currently, there are
4 independent directors from totaling 12 directors or equal to 33.33%.
They are responsible for good Corporate Governance to ensure that the
quality of management is effective, transparent and accessible.

12) 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 2011, there were no
shares held by the Thai Trust Fund and investors had bought 169,423,045
NVDRs shares (equivalent to 8.51 % of paid-up capital).

13) Risk associated with 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.

As the company was the first securities company launching Derivatives
Warrants which has been popular for couple years. The company has
strictly policy to control and monitor associated risk closely.
Currently, the company has total Credit Limit for issuing Derivative
Warrant Baht 1,000 million.

14) Risk associated with Human Resource

  Human Resource is key factor to operate securities business which is
  highly intense competition. The securities business requires
  knowledgeable and experienced personnel. Consequently, if company is
  unable to retain staff, the company’s continuity may be affected to
  the result of operation.

  In order to protect such transfer of those staffs, the company
  provides continuous training to enhance human resource development in
  term of potential and expertise to better serve client. Nevertheless,
  to create career path for the company’s staff, the company has clear
  policy where marketing officer will be properly compensated in
  accordance with current market condition. Lastly, the company’s
  management team has focused on building good relationships within the
  organization and has improved the working environment to be better
  condition.

2.  Risk factors related to Derivative Warrants (DW)

The Company was the first securities company in Thailand launching
Derivative Warrants (DW). From 2009 until 2011, the Company was the
securities company offering the most DW in Thailand. 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 : depends on the factors affecting DW price,
    and the demand and supply of DW

2.  Trading price of the underlying asset : depends on the market
    condition and the demand and supply of underlying asset

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

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

3.  Volatility of the underlying assets : depends on the market
    condition and the demand and supply of underlying asset

  - Generally, when the volatility of the underlying asset decreases,
  the prices of a call and put DW may decrease

  - Generally, when the volatility of the underlying asset increases,
  the prices of a call and put 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 and put DW may decrease

  2.5) Interest rates: depends on many factors such as in economic,
  political and market factors

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

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

  2.6) Dividend of the underlying company (Only if no right adjustment)

  - Generally, when dividend of the underlying company decreases, the
  price of a call DW may increase, but the price of a put DW may
  decrease

  - Generally, when dividend of the underlying company increases, price
  of call DW may decrease, but the price of a put DW may increase

  2.7) The liquidity of the underlying asset, the liquidity of DW :
  depends on the market condition, the demand and supply of underlying
  asset, the demand and supply of DW, and the Market Maker obligation

  2.8) Trading commission, exercise expenses, other related expenses of
  trading DW, and 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 Events of Default under the Terms and Conditions
of DW. On maturity, DW holders may receive the Net Cash Settlement later
than normal if there is Events of Default under the Terms and Conditions
of DW. Events of Default are defined as the event that is beyond the
control of the Company, but not the failure of the Company. Events of
Default may occur for many reasons including wars, political unrests,
orders prohibiting on the purchase or sale of securities, and
regulations affecting the prices of DW and underlying asset to cannot be
assigned.

  If Events of Default occur DW holders may receive the Net Cash
  Settlement later than normal, for example, if any of the events of
  default occur before or on the last trading date, but resolve within
  30 days after the last trading date. Hence, the closing price of the
  underlying asset on the business day following the day that events of
  default have been resolved shall be used as the settlement price. The
  Company shall pay the Net Cash Settlement (if any) to DW holder’s bank
  account or send a crossed cheque to the registered holder on the
  Automatic Exercise Date and send by registered mail within 8 business
  days following the day that the Company determines the Settlement
  Price.

7) DW holder may carry credit risks for either collateralized DW or
non-collateralized DW. Therefore, DW holder shall study the financial
status, overall operation, and credit rating of The Company. Also, DW
holder shall gain knowledge of the DW issuer qualification from related
institutions. Such information can be found in DW Filing document
(69-DW-Base, Part 2, 2.1 Risk factors related to the Company, 4. Credit
rating and 10. Financial status & Overall operation).

8) 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 DW.