In an open letter to European Commission president Jose Manuel Barroso, the pair called for the body "to speed up its work to establish stricter control of markets", reports the Guardian.
"It is indispensable to reinforce the transparency of short positions on equities and bonds, especially sovereign bonds," they added.
Mr Sarkozy and Ms Merkel stated that the recent turbulence in the financial markets has led to "legitimate questions" about practices such as short-selling and credit default swaps (CDSs).
They are hoping progress on the matter will be made ahead of a meeting of European finance ministers scheduled to take place in July.
Last month, Germany announced a surprise ban on naked short-selling, as well as clamping down on CDSs.
The measure, which is in place until April 1st 2011, applies to debt securities of eurozone countries held by ten of the country's top banks, including Deutsche Bank, Allianz and Commerzbank.
By Claire Archer