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Morgan Stanley Finance LLC has launched $6.5 million worth of Contingent Income Auto-Callable Securities maturing on July 26, 2029, as detailed in a pricing supplement filed with the Securities and Exchange Commission on July 27, 2026. These structured notes, fully guaranteed by Morgan Stanley, track the performance of two ETFs: the iShares Russell 2000 ETF and the State Street Technology Select Sector SPDR ETF. Investors are offered a contingent annual coupon of 12.50% but face notable downside risk, including potential total loss of principal.
Key Points
- NYSE ticker: MS-PQ
- Morgan Stanley Finance LLC issued $6.5 million in auto-callable structured notes featuring contingent coupons and principal-at-risk terms
- Pricing date: July 23, 2026; Issue date: July 28, 2026; Maturity date: July 26, 2029
- 12.50% annual contingent coupon payable only if both ETFs stay above coupon barrier levels; principal loss possible if either ETF declines significantly
Structure and Underlying ETFs
The auto-callable securities track two popular ETFs: the iShares Russell 2000 ETF (IWM) and the State Street Technology Select Sector SPDR ETF (XLK). Issued at $1,000 per unit, the total offering comprises 6,500 securities, representing a $6.5 million aggregate principal amount.
These principal-at-risk instruments base returns on the worst-performing ETF, meaning gains in one ETF do not offset losses in the other. This worst-performer approach creates a significant imbalance between risk and potential returns.
Contingent Coupon Payment Details
Coupon payments at an annual rate of 12.50% depend on both ETFs closing at or above their coupon barrier levels on observation dates. The coupon barriers are set at 70% of each ETF's initial level: $205.653 for IWM and $126.189 for XLK. If either ETF falls below its barrier on any observation date, no coupon is paid for that period, potentially resulting in zero interest payments over extended durations despite holding the notes to maturity.
Early Redemption Features
An automatic early redemption triggers if both ETFs reach or exceed their call thresholds, set at 100% of initial levels—$293.79 for IWM and $180.27 for XLK—on redemption determination dates. The first such date is January 22, 2027, with quarterly checks through April 23, 2029. Upon early redemption, investors receive principal plus any accrued contingent coupon, with no further payments thereafter, capping returns.
Principal-at-Risk at Maturity
If not redeemed early, final payments on July 26, 2029, depend on the worst-performing ETF’s level relative to downside thresholds set at 60% of initial levels: approximately $176.274 for IWM and $108.162 for XLK. Investors receive full principal plus any owed coupon if both ETFs remain above these thresholds. Otherwise, they lose 1% of principal for every 1% decline in the worst-performing ETF, risking substantial principal loss or total loss in severe market downturns.
Pricing, Fees, and Distribution
Priced at $1,000 per security on July 23, 2026, the estimated value was $973.50, reflecting a $26.50 discount due to embedded options and contingent coupons. Morgan Stanley & Co. LLC, an affiliate and wholly owned subsidiary, acts as agent, earning $20 commission per security sold, totaling $130,000. The issuer nets $980 per security, or $6.37 million in proceeds. Selected dealers and advisors receive portions of the commission based on distribution efforts.
Credit Risk and Unsecured Status
While fully and unconditionally guaranteed by Morgan Stanley, these notes are unsecured obligations without collateral or security interests in the underlying ETFs. Investors bear credit risk tied to Morgan Stanley’s financial strength. The notes are not FDIC insured or backed by any government agency, underscoring exposure to issuer default risk.
Important Dates and Timeline
The strike date was July 22, 2026, establishing initial ETF levels. Pricing occurred on July 23, 2026, with issuance on July 28, 2026. The final observation date is July 23, 2029, subject to postponements for non-trading days or market disruptions. Maturity is scheduled for July 26, 2029. Coupon and redemption dates align with observation and redemption determination dates, with the first redemption check on January 22, 2027.
Risk Considerations and Investor Profile
These securities suit investors seeking higher-than-market interest rates while accepting significant principal risk. The worst-performer structure means that declines in either ETF can negate returns, even if the other ETF performs well. Investors do not benefit from ETF appreciation beyond the capped early redemption level, and principal protection is not provided, differing fundamentally from direct ETF ownership or traditional bonds.
Regulatory Filings and Compliance
The pricing supplement was filed under Rule 424(b)(2) of the Securities Act of 1933, referencing Registration Statements Nos. 333-293641 and 333-293641-01, dated July 23, 2026, and filed on July 27, 2026. These notes are part of Morgan Stanley Finance LLC’s Series A Global Medium-Term Notes program. Additional terms are detailed in product, index, tax supplements, and prospectus documents dated April 8, 2026. The SEC and state regulators have neither approved nor disapproved these securities, and any contrary claims are criminal offenses.
