Bank of Nova Scotia Issues $485 Million Capped Buffered Return Notes Linked to S&P 500

Structured Note Terms and Return Mechanics

The notes offer investors exposure to S&P 500 price performance subject to a maximum return cap, according to the disclosure. If the final value of the index exceeds its initial value on the trade date, investors receive a return equal to the positive performance of the reference asset, but only up to the capped maximum level specified in the note terms. The filing states that all payments on the notes will be made in cash exclusively at maturity, with no interim coupon payments or interest accruing prior to the maturity date of July 31, 2031.

The buffered structure provides downside cushioning within defined limits. The disclosure indicates that investors will receive their full principal amount if the final index value is equal to or less than the initial value and simultaneously equals or exceeds the buffer value. However, if the final value falls below the buffer threshold, investors face proportional losses. The filing specifies that investors may lose up to 85.00% of the principal amount of the notes if the index declines sufficiently beyond the buffer amount, with losses calculated at a 1% reduction in principal for each 1% decrease from the initial value that exceeds the buffer level.

Pricing, Underwriting Commissions, and Net Proceeds

The bank priced the notes at 100% of the principal amount, meaning each $1,000 note carried an original issue price of $1,000. Scotia Capital (USA) Inc., an affiliate of the Bank of Nova Scotia, agreed to purchase the entire offering at the principal amount and then distribute the notes to other registered broker-dealers at a discount of $35 per $1,000 principal amount, representing a 3.50% underwriting commission. The filing states that the total underwriting commissions amounted to $16,975, leaving net proceeds to the bank of $468,025.

The disclosure highlights a material gap between the original issue price and the estimated value assigned at pricing. The bank disclosed that the initial estimated value of the notes on the trade date was $931.16 per $1,000 principal amount, substantially below the $1,000 offering price. The filing attributes this valuation difference to the bank's internal funding rate, underwriting costs, and the economic terms of hedging arrangements entered into to manage the bank's obligations under the notes. The disclosure notes that the bank's internal funding rate is typically lower than the rate the bank would pay for conventional fixed-rate debt issuances.

Secondary Market Liquidity and Pricing Dynamics

Scotia Capital (USA) Inc. may engage in market-making activities in the notes after their initial sale, though the filing makes clear that such market-making is discretionary and not obligatory. The disclosure indicates that the price at which Scotia Capital would buy or sell the notes in any secondary market would be based on Scotia Capital's own pricing models and estimated value of the notes, which may differ from the bank's initial estimates. Investors are cautioned that the secondary market price cannot be predicted with accuracy and will reflect many factors beyond the bank's control.

The filing describes a temporary reimbursement arrangement under which the bank may, in its discretion, elect to reimburse investors a portion of estimated hedging and structuring costs for approximately three months following the original issue date. The disclosure states that this reimbursement period is not guaranteed and may be discontinued or modified at any time based on changes in market conditions. The bank notes that the amount of reimbursement may not be allocated evenly throughout the reimbursement period and reserves the right to revise the duration based on factors that cannot be predicted.

Investment Minimums and Registration Details

The notes require a minimum investment of $1,000 per investor, with subsequent purchases required to be in integral multiples of $1,000 above the minimum. The offering was conducted pursuant to a registration statement with the Securities and Exchange Commission, with registration number 333-282565. The notes carry a CUSIP identifier of 063941AT5 and ISIN of US063941AT56, enabling identification and settlement through standard securities clearing systems.

The filing states that the notes were priced on July 28, 2026, with settlement scheduled for July 31, 2026, using the third DTC settlement day following the pricing date. The notes will not be listed on any U.S. securities exchange or automated quotation system, meaning they will trade exclusively through over-the-counter channels or through Scotia Capital's discretionary market-making activities. This structure limits the liquidity and price transparency available to investors compared to exchange-listed securities.

Credit Risk and Unsecured Obligation Status

The disclosure emphasizes that the notes are unsubordinated and unsecured debt obligations of the Bank of Nova Scotia, meaning all payments depend entirely on the bank's creditworthiness and willingness to pay at maturity. The filing states explicitly that "any payments on the Notes are subject to the credit risk of the Bank," making these instruments sensitive to changes in the bank's financial condition, credit rating, or market perception of its ability to meet obligations. Unlike insured deposits, the notes receive no protection from the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other government deposit insurance scheme.

The notes do not provide investors with any direct ownership interest in the underlying S&P 500 constituent stocks or any economic participation beyond the contractual return formula specified in the note terms. The filing makes clear that investors acquire no voting rights, dividend rights, or other shareholder entitlements by purchasing the notes. All returns are contingent solely on the contractual formulas tied to the index price performance, subject to the bank's credit risk throughout the five-year holding period.

Estimated Value Disclosures and Valuation Methodology

The bank's initial estimated value of $931.16 per $1,000 principal amount reflects the bank's internal pricing models applied on the trade date, incorporating assumptions about market parameters and the bank's internal funding rate. The filing explains that the difference between the 100% original issue price and the $93.116% estimated value represents the economic cost to investors of the underwriting commissions, hedging costs, and structuring fees embedded in the offering. The bank discloses that this valuation gap means investors are paying a premium above the internally estimated fair value to acquire the notes.

The disclosure acknowledges that the actual value of the notes at any subsequent point in time cannot be predicted with accuracy and will depend on numerous factors including market conditions, interest rate movements, index volatility, and changes in the bank's credit spread. The filing warns that neither the bank's nor Scotia Capital's estimated value at any future time is determined by reference to credit spreads or the borrowing rate the bank would pay for conventional fixed-rate debt, a methodological choice that the bank discloses reduces the stated economic terms of the notes to investors.

Risk Factors and Investment Suitability Considerations

The filing directs investors to comprehensive risk disclosures beginning on page P-9 of the pricing supplement and on additional pages of the accompanying product supplement and prospectus supplement. Key risks identified include the credit risk of the bank, liquidity risk due to the limited secondary market, valuation risk reflecting the gap between issue price and estimated value, and the complexity of the buffered return mechanics. The disclosure notes that the notes do not constitute a direct investment in the S&P 500 Index or its constituent stocks and therefore do not provide the transparency, tax treatment, or dividend participation of direct equity holdings.

The filing emphasizes that neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the notes, and any representation to the contrary would constitute a criminal offense. The bank discloses that investment in the notes involves certain risks that should be carefully reviewed before purchase. The filing also confirms that no U.S. federal deposit insurance or Canadian deposit insurance protects these securities, distinguishing them from conventional bank deposits.

Affiliate Distribution and Conflicts of Interest Disclosures

Scotia Capital (USA) Inc., identified as an affiliate of the Bank of Nova Scotia, served as the underwriter and agreed to purchase the entire $485 million offering at par before distributing the notes to other registered broker-dealers at a discounted price. The filing discloses that Scotia Capital may use this pricing supplement in market-making transactions after the initial sale and reserves the right to trade the notes in the secondary market. The disclosure flags the potential conflict of interest inherent in having an affiliate of the issuer serve as both the primary distributor and potential market maker.

The filing states that unless the bank, Scotia Capital, or another affiliate explicitly informs investors otherwise in the confirmation of sale, the pricing supplement should be presumed to be used in a market-making transaction. This disclosure acknowledges the dual role that Scotia Capital may play as both a distributor earning commissions on the initial sale and as a potential trader profiting from secondary market bid-ask spreads. The filing directs investors to supplemental plan of distribution disclosures in both the pricing supplement and accompanying product supplement for additional information about distribution arrangements and potential conflicts.

Structural Characteristics and Investor Protections

The notes represent a complex derivative product based on the price return of the S&P 500 Index rather than a conventional fixed-income security or direct equity investment. The filing clarifies that investors bear full market risk of index declines up to the point that losses exceed the buffer threshold, at which point they experience proportional principal erosion. The capped return mechanism means that if the index appreciates significantly, investors' upside is limited to the maximum return specified in the note terms, effectively transferring extraordinary gains to the bank or its hedging counterparties.

The structure embeds multiple layers of costs that reduce investor returns compared to direct index investment. Beyond the 3.50% underwriting commission and the $68.84 valuation gap per $1,000 note, the bank's internal funding cost and hedging expenses further reduce the net economic benefit available to noteholders. The filing's disclosure that all payments occur exclusively at maturity means investors have no interim cash flow and bear reinvestment risk for the entire five-year period. These structural characteristics position the notes as higher-cost alternatives to traditional index funds or direct equity investments for investors seeking S&P 500 exposure.