The unregulated $62 trillion credit default swap (CDS) market – the Achilles heel of the emerging financial crisis – yesterday was served notice by New York State that part of the sector will be subject to regulation for the first time by the state insurance department. Announcing the move, Governor Paterson urged the federal government to regulate the rest of the credit default swap market. The new guidelines, which will take effect from January 1, 2009, establish that certain credit swaps are insurance contracts, and therefore subject to state regulation. This reverses a decision by the state insurance department in 2000 that all CDS were not insurance. The insurance department has also issued new best practices for financial guarantee insurers, including measures designed to limit risks for financial guarantee insurers and increasing the minimum amount of capital and reserves they must maintain.