* Ministers agree rules for $700 trillion market
* Germany's Schaeuble - agreement reached
* French bid to win backing for transaction tax fizzles
By Claire Davenport and John O'Donnell
BRUSSELS, Jan 24 The European Union came a step closer to overhauling regulations for the $700 trillion derivatives market on Tuesday, one of the most opaque sectors in finance.
The EU rules, which could be in place by the end of the year, will overhaul a market that boomed in the run-up to the financial crash, demanding deals done off an exchange pass through a clearing house that pools emergency back-up capital.
Crucially, each sale, which in the past has sometimes been recorded by no more than a fax, will be registered centrally for regulators to see.
Agreeing rules will be a milestone in the European Union's programme to reform finance, one which analysts believe has lost its way as the bloc continues to grapple with problems at its banks and a sovereign debt crisis. Washington established a similar framework for derivatives in 2010.
"We have reached a common position," said Germany's Finance Minister Wolfgang Schauble on Tuesday.
The countries will now put their position to the European Parliament for approval.
Writing laws to regulate finance has driven deep divisions between the region's top powers, Germany, France and Britain, which wants to protect the City of London, which accounts for 9 percent of Britain's economy.
On derivatives, France and Britain had clashed over the powers that a pan-European watchdog will have, with Britain pushing to keep its autonomy in supervising London, which together with New York has the lion's share of derivatives trades.
George Osborne, the British chancellor of the exchequer, left the meeting in Brussels, content, said one official, that no further powers have been given to the European Securities and Markets Authority (ESMA) than originally envisaged.
Ultimately, ESMA is responsible for taking the final decision on regulation to bring order to the huge market for derivatives, such as those that hedge the risk from price moves on oil, gas or other commodities.
But on Tuesday, finance ministers agreed safeguards, introducing a voting mechanism among national supervisors that could prevent ESMA getting the final say on whether a clearing house can clear trades in a foreign market.
The dispute between France and Britain is mirrored elsewhere in financial reform.
On Tuesday, France struggled to attact interest when it presented its blueprint for a tax on financial transactions to an audience of EU finance ministers.
"The debate was short," said one EU official, speaking on condition of anonymity.
Paris plans to introduce the tax, which would be imposed on the trading of shares or company bonds, regardless of whether other countries follow suit.
Politicians are hoping it will be popular with voters ahead of elections in France but Britain already has a tax on share trading and does not want a wider scheme imposed by Brussels, fearing it would drive away business from the City of London, to global rivals such as New York.
"The French are overwhelmingly in favour of this tax -- both left and right wing voters -- for cultural and historic reasons," said Stephane Rozes, professor of political sciences at French university HEC Sciences Po.
"They want to make their economy more independent from finance, which many now see as an obstacle to development. From an economic point of view it makes no sense."
France intends to levy a charge not just on the trading of shares but also on trading financial instruments such as derivatives.
The German government supports a tax on financial deals, but concedes that the tax may not win the backing of Britain and Sweden. Stockholm saw trading migrate to London when it introduced a similar tax in the mid 1980s.
Other EU countries including Italy and Belgium are open to the idea but undecided. "The discussion on transaction tax is unavoidable," said Elio Di Rupo, Belgium's prime minister after meeting Italian premier Mario Monti.