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Commercial

May 2018

Briefing
Commodity Exchanges in Tanzania
The Tanzania Mercantile Exchange PLC market licensed by the Capital Markets
(TMX) was set up in 2014 as a public private and Securities Authority (CMSA) in which
partnership between the Treasury Registrar, offers to purchase or sell commodity
TIB Development Bank, the Public Service contracts are made on a centralised
Pension Fund and the Tanzania Federation basis.
of Cooperatives. TMX is set to be the first
commodity exchange in Tanzania, with a key • "Commodity contracts" are defined as
focus on agricultural commodities. According including:
to the National Bureau of Statistics' latest
reports, the following agricultural − Spot commodity contracts – contracts
commodities are the most produced in wherein commodities are traded and
Tanzania: delivered within a two day period

1. Sugar – around 295,000 tonnes − Commodity futures contracts – contracts


produced annually wherein commodities are traded and
delivered when a specified event occurs
2. Cashews – around 155,000 tonnes in the future
produced annually
The regulator
3. Cotton – around 150,000 tonnes
produced annually • The CMSA is responsible for regulating
and supervising commodity exchanges in
4. Tobacco – around 60,000 tonnes Tanzania.
produced annually
• Amongst other functions, the CMSA is
5. Coffee – around 60,000 tonnes produced tasked with:
annually − licensing commodity exchanges
− promoting fairness and efficiency across
In this month's briefing, we look at the legal commodity exchanges
regime governing commodity exchanges in − exchanging information with foreign
Tanzania. regulators of commodity exchanges
− formulating principles for the commodity
Commodity Exchanges Act 2015 exchanges market
− approving commodity contracts
The Commodity Exchanges Act 2015 (CE
Act) is the main law which governs Licensing of operators of commodity
commodity exchanges in Tanzania. Some of exchanges
the key issues that the CE Act deals with are
summarised below: • In order to set up and operate a
commodity exchange, the following key
Definitions
criteria would need to be fulfilled:
• A "commodity exchange" is defined as a
− Tanzanian company – an applicant must be a • In order to ensure that a commodity contract is
company incorporated in Tanzania approved by the CMSA, the following key
criteria would need to be fulfilled:
− "Fit and proper" credentials – an applicant
must have the financial and technical means − Investor information – a commodity contract
to run an effective commodity exchange must contain all information as investors would
reasonably expect to find for the purpose of
− Operating rules – an applicant must have its making an informed assessment of the
own operating rules that will ensure that the commodity and the right and liabilities
commodity exchange runs effectively attaching thereto

Rights and obligations of operators of commodity − Expert opinion – in certain circumstances, an


exchanges expert opinion may need to accompany a
commodity contract. The CE Act does not
• When a person is licensed by the CMSA to
specify which persons are authorised to issue
operate a commodity exchange, they have the
expert opinions.
right to operate a commodity exchange in
Tanzania. In addition, in the event the Commodity Exchanges Regulations 2016
commodity exchange licence is revoked by the
CMSA, a person has the right to appeal that The CMSA has the power to create regulations
decision. under the CE Act. Through this power, the CMSA
has created the Commodity Exchanges
• The right to operate a commodity exchange is Regulations 2016 (the CE Regulations). Some of
subject to complying with all obligations the key issues that the CE Regulations deal with
imposed under the CE Act or as may be are summarised below:
prescribed by the CMSA from time to time.
These obligations include: Application forms

− operating the commodity exchange in a fair, • Depending on the issue at hand, a certain type
transparent and efficient manner of application form would have to be used. For
example:
− managing risks associated with the commodity
exchange in a prudential manner − Application to operate a commodity exchange
– this would need to be made via application
− complying with the anti-money laundering and form no. 1
anti-terrorism laws in Tanzania
− Application to be a commodity broker or
− submitting annual reports to the CMSA commodity dealer – this would need to be
made via application form no. 2
− employ personnel that are competent enough
to run the commodity exchange

Approval of commodity contracts


− Application to be a commodity trading Clyde & Co Tanzania
adviser – this would need to be made via 11th Floor, Golden Jubilee Towers
application form no. 3 Ohio Street, P.O. Box 80512
Dar es Salaam, Tanzania
− Application to approve a commodity T: +255 768 983 000 / 022
contract – this would need to be made via F: +255 222 103 004
the application form prescribed under
schedule 9 of the CE Regulations Further advice should be taken before
relying on the contents of this summary.
Inspections
Clyde & Co Tanzania accepts no
• The CMSA is obliged to carry out adhoc responsibility for loss occasioned to any
inspections on all licensees at least once person acting or refraining from acting as a
a year. result of material contained in this summary.
No part of this summary may be used,
• During an adhoc inspection, licensees are reproduced, stored in a retrieval system or
obliged to be cooperative and provide all transmitted in any form or by any means,
the information that the CMSA may electronic, mechanical, photocopying,
request in a timely manner. reading or otherwise without the prior
permission of Clyde & Co Tanzania.

Contact us for further information

Peter Kasanda
Partner, Dar es Salaam
E: peter.kasanda@clydeco.com
T: +255 767 850 056

Michaela Marandu
Senior Associate, Dar es Salaam
E: michaela.marandu@clydeco.com
T: +255 768 983 024

Kankiza Tibaijuka
Associate, Dar es Salaam
E: kankiza.tibaijuka@clydeco.com
T: +255 768 983 023