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in the financial sector, through the establishment of Strategic Business Unit(s), and by complying with other conditions specified by the Board. [19] 

A 'Strategic Business Unit' shall be an organizational unit of a company with its own mission, objectives and business strategy that is given the responsibility to serve the particular demands of one business area with appropriate technological, financial and other segregations.

It is provided that for the purposes of clause (d) and (e) no foreign entity, [20] individually and collectively either as a sponsor or as a participant or as a sponsor and participant together shall hold more than 20% of the equity capital of a depository.

Board Composition

The Board composition for the two main depositories in India can be summarized as follows:

a. National Securities Depository Ltd (NSDL)

Independent Directors: 5

Shareholder Directors: 5

MD/CEO: 1

b. Central Depository Services (India) Ltd (CDSL)

Independent Directors: 2

Shareholder Directors: 5

Whole time Directors: 1

The board structure for depositories is not subject to stringent norms. Only financial institutions/banks/stock exchanges, etc. can be sponsors of a depository and these are mostly nominated as shareholder directors. Further there have been no requirements for appointment of MD/CEO that have been prescribed for depositories.

Net Worth of Depositories 托管资产净值

The net worth requirement for Depositories is 100 crores.

Disadvantages:

Prior to dematerialization there was almost a gap of three months between application date and listing of shares. Dematerialization has reduced this gap to a great extent. Current regulations prohibit multiple bids or applications by a single person. But the investors open multiple demat accounts and make multiple applications to subscribe to IPO's in the hope of getting allotment.

The recent IPO allotment scam proves that even a highly automated system is not the solution to prevent malpractices, if there is laxity. The scam of Yes bank and IDFC reveal the defect that investor banker fail to weed out multiple applications either direct or benami.eg. In the Yes Bank scandal thirteen investors had manipulated the allotment of shares by opening 7500 benami accounts and made profit in 1.7crores. Eventually all the thirteen investors were banned from trading in bank shares immediately.

Lack of coordination between banks, DP's, brokers depositories, registrars and investment bankers and clarity of their roles has given rise to such problems. The depository system is complex and in need of greater supervision and control.

Thus is the working of the Depository system in India. The advantages of the depository system outweigh the disadvantages. Few changes in the complex system and specifications regarding the appointment of Board of directors need to be specified.
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