French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote jointly to EU Commission President Jose Manuel Barroso and urged quick action to regulate certain transactions due to "turbulence" on the markets.
"The commission's work should include a possible ban at European level on naked short selling of all or certain shares and bonds and of certain credit default swaps on sovereign securities," they wrote in the letter.
Credit default swaps are instruments offering insurance against the risk that a government might be unable to honour payments due on debt it has issued
to investors to cover its overspending.
"Naked" short selling is a particularly aggressive technique of selling assets for a future date without having any immediate access to it, even through borrowing. Traders seek to profit from a future drop in prices.
The biggest market for such financial products in Europe is in London where the new Conservative-Liberal Democrat government is already facing regulatory moves from EU authorities considered unwelcome for British financial centres.
A sudden, unilateral decision by Germany to ban some forms of "naked" short selling in government debt caused consternation in European government debt markets and helped make big deficits and debt in the eurozone a hot issue.
"Strong measures have already come into force," Merkel and Sarkozy wrote in the letter dated Tuesday but released on Wednesday.
"Severe turbulence on the financial markets in recent months has however raised serious concerns among member states of the European Union and all our citizens," they added.
"We believe there is an urgent need for the (European) Commission to speed up its work concerning the strengthened framework of the market" governing transactions such as the credit default swaps and short selling.
They called on the commission to present a comprehensive action plan before a meeting of economic and finance ministers of the 27 EU countries on July 9.
Sarkozy and Merkel are to hold talks on Monday in Berlin ahead of a European Union summit later that week that will be dominated by worries over the eurozone's debt crises.
There have been mounting disagreements between the two leaders over economic policy, including frequent clashes over multi-billion-euro bailout packages for Greece and then the wider eurozone.
Paris had blamed Berlin for dragging its feet over a near trillion-dollar plan drawn up to prevent Greece's fiscal woes from spreading to other vulnerable countries, saying that it pushed up the price of the package.