The Kosei Securities Co.,Ltd.

Brokerage commission revenue may fluctuate significantly depending on the trading value in securities markets and market trends/economic conditions. As this is one of the Company's primary revenue sources, downturns in the market could have a significant impact on business performance. The Annual Securities Report states that the Company will make maximum efforts to avoid and respond to such occurrences, but does not provide specific details on revenue diversification measures.

Unpredictable fluctuations in the price levels and volatility of financial instruments handled may result in losses in the Proprietary Trading Business. Trading income is a major revenue source alongside brokerage commissions, and sudden market changes could adversely affect business performance and financial condition.

Credit concerns regarding counterparties, sharp declines in stock prices, or defaults may necessitate additional loss recognition or provisions, which could adversely affect business performance and financial condition. Margin Trading and Securities-Collateralized Loans, futures transactions, and options transactions are cited as transactions carrying credit loss risk, and this risk tends to materialize during sudden market changes.

Inaccurate business processes or accidents, inappropriate conduct by officers or employees in violation of compliance standards, or the occurrence of disasters may give rise to claims for damages or a decline in credibility. Such events could adversely affect the Company's business performance and financial condition, but the Annual Securities Report does not provide specific details of the management systems in place.

If systems fail to operate normally due to hardware or software malfunctions, communication line failures, computer virus infections, cyberattacks, disasters, etc., customer orders and proprietary trading may not be processed appropriately, which could adversely affect operations and financial condition. In particular, the Proprietary Trading Business is highly dependent on IT systems, and deficiencies in system design or operation carry the risk of leading to improper revenue recognition.

Computer crime or cyberattacks may compromise the enormous volume of transaction data processed daily. If the IT systems that form the foundation of the financial instruments business are targeted, business suspension or leakage of customer information could result in a decline in credibility and financial losses.

In transactions with overseas markets and similar activities, fluctuations in exchange rates may affect the value of assets after conversion into yen. Although the Company takes hedging measures against currency fluctuations, the risk remains that exchange rate movements exceeding expectations could affect business performance and financial condition.

If financial and economic conditions deteriorate due to unforeseen or larger-than-expected disasters, geopolitical events, infectious diseases, or other difficult-to-predict occurrences, business results may be affected. The Company has established a business continuity plan (BCP) for emergencies, including setting up an emergency response headquarters, confirming employee safety, and maintaining systems to continue operations, but there are limits to its ability to respond to situations exceeding expectations.