Morgan Stanley Finance Issues $122 Million Shopify-Linked Auto-Callable Notes Offering 20% Contingent Annual Coupon

Details on Structure and Principal Risk of the Contingent Income Securities

Morgan Stanley Finance LLC, a Morgan Stanley subsidiary, filed a pricing supplement dated July 17, 2026, outlining the terms of these Contingent Income Memory Auto-Callable Securities linked to Shopify Inc.'s Class A subordinate voting shares. The issuance totals $122 million across 122,000 units, each priced at $1,000. These unsecured obligations are fully and unconditionally guaranteed by Morgan Stanley, though investors bear credit risk of both entities.

The securities do not guarantee principal repayment nor provide regular interest. Instead, contingent coupons are paid only if specific conditions tied to Shopify's stock performance are met. The stated principal amount serves as the basis for coupon payments and potential losses, with maturity on July 20, 2028, unless redeemed earlier.

Contingent Coupon Payment Terms and Observation Dates

Investors receive a contingent coupon at an annual rate of 20.00% on each payment date only if Shopify's stock closing price meets or exceeds the coupon barrier on the relevant observation date. If the coupon barrier is not met, no interest is paid for that period. Unpaid coupons have a memory feature, allowing payment on subsequent coupon dates if conditions are met later, without additional interest on missed payments.

The exact coupon barrier level is not disclosed in the accessible filing portion, but observation dates continue through July 17, 2028. Coupon payment dates align with redemption determination dates starting January 19, 2027, and occurring monthly through June 20, 2028. If the coupon barrier is never reached, investors will receive no contingent coupons, a significant risk highlighted in the filing.

Automatic Early Redemption and Call Threshold

The securities include an automatic early redemption feature triggered if Shopify's stock closes at or above $123.56—the call threshold—on any redemption determination date. This level equals 100% of the initial stock price on July 17, 2026. Early redemption opportunities begin January 19, 2027, and occur monthly through June 20, 2028, subject to market conditions.

Upon early redemption, investors receive the $1,000 principal plus the contingent coupon for that period and any unpaid coupons. No further payments are made after redemption. While this provides an exit if Shopify's stock appreciates, investors do not benefit from stock gains beyond the redemption trigger.

Maturity Payment Scenarios and Downside Risk

If not redeemed early, at maturity on July 20, 2028, investors receive the principal plus contingent coupons if Shopify's final stock price is at or above the downside threshold. If the final price is below this threshold, investors incur losses proportional to the stock's decline, losing 1% of principal for every 1% drop below the initial level.

The filing does not specify the downside threshold but warns that payments could be significantly less than principal or even zero, meaning a total loss of the $1,000 investment is possible. The document explicitly states investors must accept the risk of losing their entire initial investment.

Estimated Value and Commission Structure

Morgan Stanley estimated the securities' value at $958.30 each on the pricing date, below the $1,000 issue price. The commission structure includes $26 per security paid to Morgan Stanley & Co. LLC, the agent and issuer affiliate, with portions allocated to selected dealers. Total commissions on the $122 million issuance amounted to $3,172, yielding net proceeds of $118,828 to the issuer.

For fee-based advisory account investors, the public price is $974 per security, with selected dealers and advisors potentially receiving up to $6.25 per security in structuring fees. Dealers selling to advisory clients do not receive the standard $26 commission, reflecting different compensation arrangements.

Hedging and Use of Proceeds

The pricing supplement references additional information on proceeds use and hedging in the product supplement but lacks specific hedging details in the accessible section. Typically, Morgan Stanley Finance uses issuance proceeds to hedge exposure to Shopify stock via underlying assets or derivatives.

Morgan Stanley & Co. LLC acts as agent in distribution, presenting potential conflicts of interest since it is a wholly owned subsidiary of Morgan Stanley and earns commissions on sales. Readers are advised to consult the product supplement for comprehensive details on proceeds use.

Unsecured Obligations and Credit Risk

The securities are unsecured obligations not backed by reference assets or collateral. Although guaranteed by Morgan Stanley, the guarantee itself is unsecured. All payments depend on Morgan Stanley's creditworthiness; a default could result in partial or total loss of investment.

The filing stresses these securities are not bank deposits, lack FDIC insurance, and are not bank obligations. Investors must consider both Shopify stock performance risk and Morgan Stanley credit risk when evaluating these notes.

Important Dates and Settlement Timeline

The strike and pricing dates were July 17, 2026, with issuance on July 22, 2026. The final observation date is July 17, 2028, subject to adjustments for non-trading days or market disruptions. Monthly redemption determination dates run from January 19, 2027, through June 20, 2028, offering early redemption chances over approximately 18 months.

These securities are part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program under registration numbers 333-293641 and 333-293641-01, among 17,073 pricing supplements filed under Morgan Stanley's structured investments program.

Regulatory Status and Suitability

The Securities and Exchange Commission and state regulators have neither approved nor disapproved these securities, nor verified the completeness or accuracy of the pricing supplement or related documents. Any contrary claim would be a criminal offense. The filing complies with Rule 424(b)(2) of the Securities Act of 1933.

The securities suit investors seeking potential above-market returns via a 20% contingent coupon in exchange for significant downside risk. Investors are warned they will not benefit from stock appreciation beyond the automatic redemption trigger and may receive no coupons if Shopify's stock fails to meet coupon barriers on all observation dates. The filing states: "The securities are for investors who seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of losing a significant portion or all of their principal and the risk of receiving no coupons over the entire term of the securities."