EU mulls short selling ban powers for supervisors.
EU Internal Market Commissioner, Michel Barnier, has said he will present a legislative proposal to regulate short selling.
"The Commission believes that working towards a more harmonised regime will increase the resilience and stability in financial markets in the European Union," the EU executive said.
Among the options being looked at is to give supervisors powers to temporarily restrict or ban uncovered short selling and credit default swaps in emergency situations, the Commission said in its consultation paper.
"Competent authorities would then need to clearly justify why they are taking action, this could only be for a limited period of time and would be subject to various processes and coordination by the European Securities Markets Authority," the paper added, referring to the planned new pan-EU watchdog.
Naked selling is where the seller has not borrowed the securities at the time of the short sale. The practice has been blamed by countries like Greece for exacerbating sovereign debt woes in the euro zone.
Germany has already introduced a unilateral ban on naked short selling, sparking upheaval in global markets and anger among its EU neighbours for failing to consult them.
France last week gave its local supervisor powers to temporarily ban some naked short selling.
A draft EU law -- which would need approval from member states and the European Parliament -- could also contain measures to increase transparency on short positions in shares and derivatives.
Britain already requires reporting of short positions in shares above a certain size to the market.
The Commission said the transparency rules could be applied only to EU shares and sovereign bonds or to all financial instruments listed in the bloc.
Other options include requiring short sellers of shares to make prior arrangements for borrowing them or require trading venues to buy the shares if a trade cannot be settled.
Brussels also launched a consultation on its draft law to crack down on the broader $615 trillion off-exchange derivatives market, of which CDS are a part.
Barnier is due to present a draft law in September to require mandatory central clearing of standardised derivatives contracts to improve transparency and curb risk, in line with pledges the EU made at the Group of 20 leading countries.
Controversially, the consultation looks at how best to require central clearing houses to hook up to each other and offer users a wider choice of trading venues. A voluntary code of conduct has failed to usher in link ups.
Barnier has also left open whether a trade repository for reporting derivatives trades should be based on EU soil.
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