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Morgan Stanley in bid to cut credit risk

Morgan Stanley has launched what it claims is the first retail structured product to be cash-collateralised and backed by UK Government gilts.

The FTSE defensive gilt-backed three-year growth plan offers a return of 9 per cent a year as long as the FTSE 100 does not fall by more than 10 per cent on each annual anniversary of the plan. It also includes a 50 per cent soft protection barrier observed at maturity. It uses Standard & Poor’s AAA-rated UK government bonds to secure capital protection and collateral arrangements to minimise credit risk by posting cash into a segregated account on a daily basis to secure returns created by the derivative.

Chelsea Financial Services head of investment products Matthew Woodbridge says: “If someone is getting 9 per cent after a year, with the FTSE falling up to 10 per cent with low credit risk it is an attractive product.

“The structured product market is very rate-driven so the question is how expensive will gilt-backed products become but, depending on the success of this plan, we may well see a shift to this area.”

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