EU leaders ask for short selling, CDS rules

BRUSSELS

European Union leaders have asked for EU rules to govern "naked" short-selling and credit default swaps in a crackdown against trades some blame for exaggerating Europe's debt crisis.

EU President Herman Van Rompuy said leaders told the European Commission at Thursday talks "to quickly make proposals" for the financial trades -- after France and Germany called for "strict control" of markets to keep severe trading turbulence in check.

Germany rattled markets last month by abruptly and unilaterally banning naked short-selling of eurozone government debt and major financial stocks, as well as naked credit default swaps involving eurozone debt.

The move spooked investors at the time.

Short-selling occurs when traders sell shares or investments they do not own themselves. Credit default swaps are a type of insurance against a borrower going bankrupt. Both have become a large and lucrative market.

The European Union's executive has already said it is planning to propose legislation in September. Last week, it said it was thinking of limiting member states' power to temporarily ban credit default swaps in order to better coordinate countries' responses to market crises.

It suggested that any ban would be temporary and would only be made in emergency situations and after talks with supervisors from all 27 EU nations.