On the back of the figures released by the BIS the other I have been doing some more research into who exactly is using credit derivatives (and CDS' in particular) and for what purpose. Having found some research from Fitch, it seems that the use of CDS (by the banks at least) is starting to change. Initially they were net buyers of protection i.e. they were using CDS as a hedging tool to cover their risk exposures. However in the last year they have become net sellers of protection - so they are starting to use them as more than just a hedging tool but as a trading as well. Of the banks interviewed by Fitch, 30% suggested that their use was mainly for hedging, 43% for intermediary purposes and 51% for trading.

So who else has been selling protection? According to Fitch it is mainly the large insurance companies and CDPCs (Credit Derivative Product Companies) such as Athilon set up especially for the purpose. And on the other side (and no surprises here) its the Pension funds and Hedge Funds. There are of course ways that Buy Side firms can sell protection other than pure speculation (as can be seen in the attached diagram below) - however very of them that I have come across have started down this road as yet...