Series 66: STRIPS (Separate Trading Of Registered Interest And Principal Of Securities)

STRIPS (Separate Trading of Registered Interest and Principal of Securities)

Coupon stripping is the act of detaching the interest payment coupons from a note or bond and treating the coupons and principal as separate securities.

Here’s how it works. A financial institution will buy a Treasury bond or 10-year T-note and turn the principal and each interest payment into separate securities with maturities that correspond to the timing of each interest payment. The separate securities are sold at deep discount, increasing in value each year until they reach their face value at maturity. Thus, STRIPS are considered a type of zero coupon bond. When a broker-dealer issues and sells STRIPS, they are o