France and Germany agree on the principle of banning naked short selling, French economy minister Christine Lagarde said today, striking a conciliatory note after initial friction following Berlin's surprise move.
Germany roiled markets and surprised its EU partners last month by announcing a unilateral ban on speculative trades in top financial stocks, euro zone government bonds and related credit default swaps (CDS).
"There's much more convergence than there is difference between France and Germany I can assure you," Ms Lagarde said ahead of talks at the Group of 20 meeting in Busan.
"There have been issues concerning the timing of certain mesures which were started a little bit earlier in Germany," she said. "That applies clearly to the ban on short selling, but we are basically in line and on the same page as far as principles are concerned," she said.
"Clearly in terms of timing we are ... back into place and good order."
The European Union's executive has said action on short selling would be more effective if taken jointly by the region's member states and it will propose in October a measure to increase transparency in short selling.
Ms Lagarde wants to bring forward the EU proposal to July or September, French daily Le Figaro reported today.
Naked short selling involves selling securities without owning or borrowing the underlying assets in the hope of buying them back at a lower price.
Germany and Greece have blamed speculators for using CDS contracts, a type of insurance against default, to bet that government debt woes in euro zone countries would deteriorate.
Banks say the CDS market is too small to influence debt prices.
Despite negative response to Berlin's move, Germany appears poised to widen the ban, to cover all shares. France now only bans naked short selling of stocks and has indicated it will not follow in Germany's footsteps.
Ms Lagarde said France would explore the idea of a ban on credit default swaps. "We want to move all together, that's the point and we are very happy with the principles and very happy to explore further the ban or partial ban or at least the ability to ban in particular circumstances on CDS particularly and CDS on sovereign debt," she said.
"We'll discuss that with our partners and what we believe strongly is that we have to move together."
EU regulators have said there is no consensus on whether to copy Germany's ban on naked selling of CDS contracts.
The bulk of CDS trading takes place in London and Britain's financial services minister, Mark Hoban, said any clampdown must be proportionate and evidence-based.
French markets watchdog, the AMF, has just proposed cutting the number of days traders have to settle a securities trade from three to one to curb short selling. The Association for Financial Markets in Europe, which represents the world's biggest banks, said the step would prove ineffective in preventing short selling.
Most markets in Europe allow three days for settlement.
Reuters