STRIPS is the acronym for Separate Trading of Registered Interest and Principal of Securities. These securities have existed in international bond markets for some years.
“Stripping” involves separating a plain vanilla bond into its constituent interest (coupon) payments (often called C-strips) and the principal payment (often called the P-strip), such that they exist separately.
The way bonds are stripped is straightforward: the plain vanilla bond is placed in a special purpose vehicle (SPV) and the SPV in turn issues the various “stripped” bonds (C-strips and the P-strip), with the bond providing collateral security. Bonds may also be stripped by the issuer itself: the bond (or part of the issue) is cancelled and a series of C-strips and P-strips are issued in place thereof.
