European finance ministers said they agreed a new negotiating position yesterday in a bid to clamp down on the short-selling of sovereign debt and company shares.

The now want to give a European Union regulatory body, the European Securities and Markets Authority, power to stop trading in some instances, but this has still to be fully negotiated with the European Parliament. Britain, which lays claim to 80 per cent of all such trading in the EU, said it successfully watered down the plans on the grounds that European regulators may face stiff legal challenges from companies blocked.

The parliament wants to be much tougher on traders whose speculative trading strategies was blamed by some for bringing down banks at the height of the financial crisis and subsequently wrecking government finances.

Investors who bet that securities, such as shares, will fall in price will now have to tell regulators what they are intending to do, or at least make arrangements to ensure the monies are there to cover their investment.

Defenders of such short-selling say it provides a necessary hedge against risk in the markets while its critics argue that it stokes volatility and encourages speculative, short-term trade for immediate gain rather than a long-term investment.