The Legal and Regulatory Framework of the Tanzania Mercantile Exchange (TMX): Opportunities, Gaps, and Reform Pathways

Chapter 1: The Tanzania Mercantile Exchange (TMX): Legal Foundations, Regulatory Oversight and Market Governance

Introduction

The Tanzania Mercantile Exchange (TMX) was established as part of broader efforts by the Government of Tanzania to modernise and formalise the country's commodity markets, particularly within the agricultural sector. Agriculture remains a cornerstone of Tanzania's economy, contributing significantly to gross domestic product (GDP), employment, export earnings, and household livelihoods. The sector employs the majority of the country's workforce and serves as the primary source of income for a large proportion of the population, particularly in rural areas. Historically, however commodity trading has often been characterised by fragmented markets, limited price transparency, and restricted access to financing, making it difficult for producers and traders to realise the full value of their commodities.

The establishment of TMX seeks to address these challenges by providing a regulated marketplace through which commodities can be traded in a structured, transparent, and efficient manner. Beyond facilitating the buying and selling of commodities, the TMX promotes fair price discovery, improves access to market information, and supports commodity-backed financing through the use of warehouse receipts. In doing so, TMX creates opportunities for farmers, traders, buyers, and financial institutions to participate in a more organised and reliable trading environment.

In this chapter, we examine the legal and regulatory framework governing the TMX, including the key legislation underpinning its operations, the roles of the principal regulatory authorities, and the licensing, compliance, and enforcement requirements applicable to market participants.

Legal Framework Governing TMX

The establishment, operation, and oversight of the TMX are primarily governed by the following legislative instruments:

• Commodity Exchanges Regulations, G.N. No. 146 of 2016 (the Commodity Exchanges Regulations);
• The Capital Markets and Securities Act, Chapter 79 Revised Edition 2023 (the CMS Act);
• The Commodity Exchanges Act, Chapter 445 Revised Edition 2023 (the Commodity Exchanges Act); and
• The Warehouse Receipts Act, Chapter 339 Revised Edition 2023 and Warehouse Receipts Regulations, G.N. No. 109 of 2016; (the WRA).

Key Regulatory Institutions

Capital Markets and Securities Authority (CMSA)

The CMSA, established under section 6 of the CMS Act, is the principal regulator of Tanzania's commodity exchange sector. It oversees commodity exchanges and market participants, promotes fair and transparent trading, ensures compliance with the applicable regulatory framework, and safeguards market integrity and confidence. Its primary responsibilities include:

• licensing commodity exchanges and market intermediaries;
• supervising market conduct and trading activities;
• enforcing investor protection requirements;
• investigating market misconduct and regulatory breaches;
• approving commodity trading contracts; and
• imposing regulatory sanctions where necessary.

The Warehouse Receipts Regulatory Board (WRRB)

The WRRB, established under section 4 of the WRA, is the principal regulator of Tanzania's warehouse receipts system. It is responsible for overseeing warehousing operations and ensuring the integrity, reliability, and efficiency of warehouse receipt-based commodity transactions. Its primary responsibilities include:

• licensing warehouse operators and other warehouse service providers; 
• regulating the issuance and use of warehouse receipts; 
• supervising quality, quantity, and safety standards for stored commodities; 
• approving warehouse receipt systems and formats; 
• maintaining registers of licensed participants; and 
• representing Tanzania in warehousing-related frameworks.

Licensing Requirements

The Commodity Exchanges Act establishes a licensing framework for both commodity exchanges and commodity market intermediaries. Accordingly, persons seeking to operate as commodity brokers, dealers, advisers, and other prescribed intermediaries must obtain the requisite licence from the CMSA before carrying on regulated activities.

The Commodity Exchanges Act requires any entity seeking to operate a commodity exchange in Tanzania to be incorporated as a company under the Companies Act, Cap. 212 R.E. 2023. This means that only locally registered companies may obtain a licence to operate a commodity exchange in the country.

In assessing licence applications, the CMSA applies a "fit and proper" test to determine whether an applicant is suitable to operate within the commodity exchange market. The CMSA may also grant a licence subject to such conditions or restrictions as it considers appropriate.

Key considerations in the fit and proper assessment include whether the applicant:

• is a fit and proper person for the licence sought;
• has a board of directors constituted in accordance with the corporate governance requirements prescribed by the CMSA in relation to corporate governance;
• complies with the prescribed minimum capital requirements;
• is capable of operating fairly, transparently, efficiently, and ethically in accordance with the requirements of the licence sought;
• has adequate systems to prudently manage risks associated with its business and operations;
• has rules that adequately address the matters prescribed under section 9 of the Commodity Exchanges Act; and
• complies with any other conditions that may be imposed by the CMSA.

Ongoing Compliance Obligations

Licensed participants are subject to ongoing compliance obligations under the Commodity Exchanges Regulations. These obligations include:

• maintaining proper books of account;
• preparing and submitting audited financial statements;
• retaining records for a minimum of ten (10) years;
• segregating client funds from proprietary funds;
• issuing contract notes for all transactions; and
• providing adequate risk disclosures to clients.

Regulatory Enforcement

Under the Commodity Exchanges Regulations the CMSA has broad powers to monitor compliance and enforce the regulatory framework. These powers include:

• conducting inspections and investigations;
• suspending or revoking licences; and
• imposing administrative sanctions and penalties.

Conclusion

The TMX represents an important step in the modernisation of Tanzania's commodity markets. By providing a transparent and regulated trading platform and integrating the warehouse receipts system, TMX aims to enhance price discovery, improve market access, facilitate financing, and reduce inefficiencies in commodity trading. As Tanzania continues to strengthen its agricultural sector, TMX and WRRB are expected to play an increasingly significant role in supporting market development, improving value chains, and creating greater opportunities for producers, traders, lenders, and other market participants.