(8)The Policy Manual generally applies to transactions in non-centrally cleared derivatives conducted between AIs and ‘covered entities’. For the purposes of the Policy Manual, ‘covered entities’ mean financial counterparties, significant non-financial counterparties, or other entities designated by the HKMA, but exclude sovereigns, central banks, public sector entities, multilateral development banks, and the Bank for International Settlements. Under the Policy Manual, ‘financial counterparty’ refers to any entity for a one-year period from 1 September each year to 31 August of the following year, if the entity itself or the group to which it belongs has an average aggregate notional amount of non-centrally cleared derivatives exceeding HKD 15 billion, and that is predominantly engaged in any of the following activities: banking, securities business, management of retirement fund schemes, insurance business, operation of a remittance or money changing service, lending, securitisation (except where and to the extent that the related special purpose entity enters into non-centrally cleared derivatives transactions for the sole purpose of hedging), portfolio management (including asset management and funds management) and activities that are ancillary to the conduct of those activities. Under the Policy Manual, ‘significant non-financial counterparty’ refers to any entity other than a financial counterparty for a one-year period from 1 September each year to 31 August of the following year, that has itself, or the group to which it belongs, an average aggregate notional amount of non-centrally cleared derivatives exceeding HKD 60 billion. The definition of ‘covered entities’ therefore broadly corresponds to the definition of ‘financial counterparty’ in Article 2(8) of Regulation (EU) No 648/2012, while excluding in a similar manner special purpose vehicles where the transaction is conducted for the sole purpose of hedging.