Morgan Stanley Finance Launches $122 Million Shopify-Linked Auto-Callable Securities With 20% Contingent Coupon

Structure and Principal Risk Profile of the Contingent Income Securities

Morgan Stanley Finance LLC, a subsidiary of Morgan Stanley, filed a pricing supplement dated July 17, 2026, disclosing the terms of the Contingent Income Memory Auto-Callable Securities tied to Shopify Inc.'s Class A subordinate voting shares. The securities represent principal at risk instruments with an aggregate issuance of $122,000 across 122,000 units priced at $1,000 each. The disclosure emphasizes that these are unsecured obligations of Morgan Stanley Finance LLC, fully and unconditionally guaranteed by Morgan Stanley, though investors bear the credit risk of both entities.

The filing specifies that the securities do not guarantee principal repayment and provide no regular interest payments. Instead, investors receive contingent coupons only under specific conditions tied to Shopify's stock performance. The stated principal amount represents the benchmark against which both coupon payments and potential losses are calculated, with the securities maturing on July 20, 2028, unless they are automatically redeemed earlier.

Contingent Coupon Payment Mechanics and Observation Dates

The securities will pay a contingent coupon at an annual rate of 20.00% on each coupon payment date, but only if the closing level of Shopify's stock is greater than or equal to the coupon barrier level on the related observation date. The filing indicates that if the coupon barrier condition is not met on any observation date, no interest is paid for that period. Importantly, unpaid contingent coupons have memory features and will be paid on subsequent coupon payment dates if the coupon barrier condition is eventually met, though no additional interest accrues on previously unpaid amounts.

The disclosure does not specify the exact coupon barrier level in the accessible portion of the filing, referring instead to ongoing observation dates through July 17, 2028. Coupon payment dates are tied to a schedule of redemption determination dates beginning January 19, 2027, and occurring monthly thereafter through June 20, 2028. If the coupon barrier is never satisfied through the final observation date, investors will receive no contingent coupon payments whatsoever, and the filing warns that this is a real risk investors must accept.

Automatic Early Redemption Trigger and Call Threshold

The securities feature an automatic early redemption mechanism that activates if Shopify's stock closes at or above the call threshold level of $123.56 on any redemption determination date. This strike level represents 100% of the initial level on the pricing date, July 17, 2026. The first opportunity for early redemption occurs on January 19, 2027, and subsequent redemption determination dates occur monthly through June 20, 2028, subject to postponement for non-trading days and certain market disruption events.

When automatic redemption is triggered, investors receive the stated principal amount ($1,000 per security) plus the contingent coupon for the related interest period and any previously unpaid contingent coupons. The filing emphasizes that once securities are automatically redeemed, no further payments are made. This feature provides an exit opportunity for investors if Shopify's stock appreciates, but the filing clarifies that investors will not participate in any appreciation of the stock beyond triggering redemption at par value.

Maturity Payment Scenarios and Downside Threshold Protection

The securities contain asymmetric payoff structures at maturity depending on Shopify's final stock level. If the securities have not been automatically redeemed and the final level on July 17, 2028 is greater than or equal to the downside threshold level, investors receive the stated principal amount plus the contingent coupon for the final observation date and any previously unpaid contingent coupons. However, if the final level falls below the downside threshold, investors lose 1% for every 1% decline in the stock level from the initial level.

The filing does not disclose the exact downside threshold percentage in the accessible section but warns that under adverse scenarios, the maturity payment could be significantly less than the stated principal amount and could potentially be zero. This means that if Shopify's stock falls sufficiently, investors could lose their entire $1,000 investment. The disclosure states explicitly: "Investors in the securities must be willing to accept the risk of losing their entire initial investment."

Estimated Value and Agent Commissions Structure

Morgan Stanley provided an estimated value on the pricing date of $958.30 per security, representing a discount to the $1,000 issue price. The filing discloses a multi-tier commission structure in which Morgan Stanley & Co. LLC, the agent and an affiliate of the issuer, receives $26 per security in commissions, with selected dealers receiving a portion of these commissions. The total commission on the $122 million issuance amounted to $3,172, with net proceeds to the issuer of $118,828.

For investors purchasing through fee-based advisory accounts, the price to public is adjusted to $974 per security, with selected dealers and their financial advisors potentially receiving an additional structuring fee of up to $6.25 per security from the agent. The filing discloses that dealers selling to fee-based advisory account clients will not receive the standard $26 sales commission, reflecting different compensation models for advisory versus principal-based transactions.

Hedging Activity and Use of Proceeds Disclosures

The pricing supplement references supplemental information regarding use of proceeds and hedging in the accompanying product supplement but does not detail specific hedging strategies in the accessible portion of the disclosure. Morgan Stanley Finance LLC, as the issuer, typically uses proceeds from structured note issuances to establish hedges with the underlying asset or derivative contracts to offset its exposure to the performance of Shopify's stock.

The filing notes that Morgan Stanley & Co. LLC acts as the agent in the distribution of these securities and emphasizes potential conflicts of interest given that MS & Co. is both a wholly owned subsidiary of the guarantor (Morgan Stanley) and is compensated through commissions on sales. Readers are directed to the product supplement for more complete information regarding the use of proceeds.

Unsecured Obligation Status and Credit Risk Emphasis

The disclosure explicitly states that the securities are unsecured obligations and are not secured by any underlying reference assets or collateral. While the securities are fully guaranteed by Morgan Stanley, the guarantee itself is also an unsecured obligation of the parent company. The filing emphasizes that all payments are subject to Morgan Stanley's credit risk, and in the event of Morgan Stanley's default, investors could lose some or all of their investment.

The filing repeatedly highlights that the securities are not deposits, not insured by the Federal Deposit Insurance Corporation, and are not obligations of any bank. Investors are directed to assess both the performance risk (based on Shopify's stock movements) and the credit risk of Morgan Stanley when evaluating these investments.

Key Dates and Settlement Timeline

The strike date and pricing date for the securities were both July 17, 2026, with the original issue date set for July 22, 2026. The final observation date is scheduled for July 17, 2028, subject to postponement for non-trading days and market disruption events, and the maturity date is July 20, 2028. Monthly redemption determination dates begin on January 19, 2027, and continue through June 20, 2028, providing potential early redemption opportunities every month for approximately 18 months.

The filing notes that the securities are issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program under registration statement numbers 333-293641 and 333-293641-01. This represents one of 17,073 pricing supplements filed under the Morgan Stanley structured investments program, indicating the extensive scope of the issuer's structured note offerings.

Regulatory Status and Investor Suitability Considerations

The filing discloses that the Securities and Exchange Commission and state securities regulators have not approved or disapproved the securities, nor have they determined whether the pricing supplement or accompanying documents are truthful or complete. Any representation to the contrary would constitute a criminal offense. The disclosure is filed pursuant to Rule 424(b)(2) of the Securities Act of 1933.

The filing emphasizes that these securities are appropriate only for investors seeking potential above-market returns (the 20% contingent coupon) in exchange for accepting significant downside risk. Investors are explicitly cautioned that they will not participate in stock appreciation beyond the automatic redemption trigger, and that they may receive no coupon payments if Shopify's stock fails to meet the coupon barrier on every observation date. 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."