Bank of Nova Scotia Issues $8 Million Autocallable Notes Linked to Alphabet Stock

Structure and Automatic Call Provisions of the Linked Notes

The Bank of Nova Scotia's newly issued Autocallable Contingent Coupon Notes incorporate an automatic call mechanism that triggers if the Closing Value of Alphabet Inc. Class A common stock reaches or exceeds the Initial Value on any designated Call Observation Date. Upon automatic call activation, noteholders receive a cash payment per note equal to the Principal Amount plus any Contingent Coupon otherwise payable on the corresponding Contingent Coupon Payment Date, along with any accrued Unpaid Contingent Coupons not yet paid. Following an automatic call event, no further payments are made on the Notes, effectively terminating the investment relationship between the issuer and the noteholder.

This autocall structure represents a significant feature distinguishing the offering from conventional fixed-income securities. The mechanism transfers substantial performance risk to the investor, as the notes cease paying coupon income the moment Alphabet's stock price reaches predetermined thresholds. Investors who purchase these notes at par value ($1,000) face the scenario in which their investment is called away at principal if Alphabet stock appreciates, thereby capping potential upside participation while exposing them to downside risk if the stock declines substantially.

Contingent Coupon Payment Terms and Memory Feature

The notes employ a contingent coupon framework with a memory feature, meaning unpaid coupons accumulate and may be paid on future Contingent Coupon Payment Dates when specified conditions are met. On any Contingent Coupon Observation Date, if the Closing Value of Alphabet stock equals or exceeds the Contingent Coupon Barrier Value, the notes will pay a Contingent Coupon plus any previously accrued Unpaid Contingent Coupons that have not yet been distributed. Conversely, if the Closing Value falls below the Contingent Coupon Barrier Value on any observation date prior to the Final Valuation Date, the related Contingent Coupon becomes unpaid and carries forward to the next eligible Contingent Coupon Payment Date.

This memory mechanism creates complexity in cash flow projections and introduces reinvestment uncertainty. Noteholders cannot predict with certainty when or whether contingent coupons will be paid, since payment depends entirely on Alphabet's stock price remaining above the designated barrier on observation dates. The accumulation of unpaid coupons adds another layer of subordination risk, as these accrued payments remain subject to the creditworthiness of The Bank of Nova Scotia and may be at risk if the issuer faces financial distress.

Maturity Valuation and Physical Delivery Risk

If the notes are not automatically called prior to maturity on January 21, 2028, the Payment at Maturity depends exclusively on the Final Value, defined as the Closing Value of Alphabet stock on the Final Valuation Date. Should the Final Value equal or exceed the Barrier Value, noteholders receive a cash payment per note equal to the Principal Amount, plus any final Contingent Coupon and accrued Unpaid Contingent Coupons. However, if the Final Value falls below the Barrier Value at maturity, investors receive a number of shares of Alphabet Inc. (or cash in lieu of fractional shares) equal to the Physical Delivery Amount per note, exposing them to the potential loss of up to 100 percent of the Principal Amount.

This feature transforms the notes into a leveraged equity exposure device, effectively granting short put-like exposure to Alphabet stock. If Alphabet shares decline significantly during the 18-month term, noteholders will receive fewer shares than they could have purchased with their original principal investment, realizing a direct capital loss. The disclosure emphasizes that noteholders have no direct economic interest, claim, or entitlement to the Reference Asset and possess no voting rights or rights to receive dividends or distributions on Alphabet stock during the holding period.

Pricing and Estimated Value Disclosure

The Bank of Nova Scotia priced the notes at 100 percent of par value, or $1,000 per note, generating total gross proceeds of $8.052 million. However, the initial estimated value of the notes at the time terms were set on July 16, 2026, was determined to be $978.27 per $1,000 Principal Amount, representing a substantial discount to the Original Issue Price. This $21.73 per-note gap between the initial estimated value and the issue price reflects the economic cost of the embedded derivatives, hedging arrangements, underwriting discount, and structuring expenses incorporated into the offering.

The Bank's disclosure states that the initial estimated value was calculated using the Bank's internal pricing models, which incorporate the Bank's internal funding rate on the Trade Date and assumptions about market parameters. The Bank has further disclosed that its internal funding rate is typically lower than the rate it would pay for conventional fixed-rate debt securities, effectively reducing economic terms available to investors. Scotia Capital (USA) Inc., the Bank's affiliate, received an underwriting commission of 1.50 percent ($120,780 total), with proceeds to the Bank totaling 98.50 percent of the Original Issue Price, or $7.931 million.

Secondary Market Liquidity and Estimated Cost Reimbursement

The Bank of Nova Scotia's disclosure indicates that, assuming relevant factors remain constant after the Trade Date, the price at which Scotia Capital (USA) Inc. may initially buy or sell the notes in the secondary market could temporarily exceed the initial estimated value. This temporary premium is expected to persist for approximately three months after the Original Issue Date and reflects the Bank's discretionary decision to effectively reimburse investors a portion of the estimated cost of hedging obligations under the notes and other structuring costs that the Bank will no longer expect to incur over the remaining term of the notes.

The Bank stated that this discretionary reimbursement period was determined on the basis of multiple factors, including the tenor of the notes and any agreement with the distribution agents. Notably, the disclosure does not provide investors with a specific estimate of this reimbursement amount or the exact mechanism by which such reimbursement will be reflected in secondary market pricing. Investors considering purchasing these notes in the secondary market should be aware that pricing may be influenced by the Bank's internal valuations and that the notes are not listed on any U.S. securities exchange or automated quotation system, potentially limiting transparency and execution efficiency.

Credit Risk and Issuer Creditworthiness

The Bank of Nova Scotia explicitly discloses that the notes are unsubordinated and unsecured debt securities of the Bank and that any payments or deliveries on the notes are subject to the credit risk of the Bank. This structural subordination means that noteholders' claims are junior to secured creditors and rank pari passu with other unsecured general creditors of The Bank of Nova Scotia in the event of the Bank's insolvency or bankruptcy. The disclosure emphasizes that the economic value and ultimate recovery of principal and contingent coupons depend entirely on the Bank's ability to meet its obligations.

Additionally, the Bank of Nova Scotia is not a U.S. bank, and the notes are not insured by the Federal Deposit Insurance Corporation (FDIC) or the Canada Deposit Insurance Corporation (CDIC). This exposure to cross-border credit risk and the absence of deposit insurance protection adds an additional layer of issuer risk that investors must weigh alongside the underlying Reference Asset price risk. Investors holding these notes should monitor the Bank's credit ratings and financial health throughout the 18-month term.

Regulatory Status and Investment Restrictions

The pricing supplement makes clear that neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or adequacy of the disclosure documents. This standard disclaimer reflects the regulatory framework governing structured notes, which are offered pursuant to an effective shelf registration statement (Registration No. 333-282565) under Rule 424(b)(2) of the Securities Act of 1933. Investors should understand that the absence of SEC approval does not mean the notes are inherently unsuitable; rather, it reflects the nature of the regulatory process for market-linked securities.

The notes have a minimum investment of $1,000 and integral multiples of $1,000 in excess thereof. The notes are not listed on any U.S. securities exchange or automated quotation system, meaning they trade over-the-counter and investors may face liquidity constraints when attempting to sell prior to maturity. The CUSIP and ISIN identifiers for the notes are 063941BK3 and US063941BK39, respectively, enabling investors to track and identify the specific series of notes in market data systems.

Alphabet Stock Performance as Determinative Factor

The structure and profitability of these notes depend entirely on the price performance of Alphabet Inc. Class A common stock during the approximately 18-month term. As a derivative product, the notes do not represent direct equity ownership of Alphabet, nor do noteholders receive dividends or voting rights. Instead, the notes function as a leveraged bet on Alphabet's stock price, with asymmetric payoff characteristics that reward investors if Alphabet stock appreciates but expose them to principal loss if Alphabet stock declines below the Barrier Value by the Final Valuation Date.

Investors considering these notes should conduct thorough due diligence on Alphabet's business fundamentals, competitive position within the technology sector, regulatory environment, and macroeconomic factors that may influence its stock price. The nearly 18-month investment horizon means noteholders will be exposed to Alphabet-specific news, earnings announcements, executive changes, antitrust developments, and broader technology sector cyclicality throughout the holding period.

Risk Disclosure and Investor Suitability Considerations

The Bank of Nova Scotia's disclosure emphasizes that investment in the notes involves certain risks and directs investors to detailed risk sections beginning on pages P-12, PS-6, and S-2 of accompanying product supplements and prospectuses. Key risks include estimated value and liquidity risk, the contingent nature of coupon payments, the possibility of total principal loss at maturity, credit risk of the Bank, and market risk related to Alphabet Inc.'s stock price. The notes are complex instruments unsuitable for conservative investors or those seeking principal protection and guaranteed income.

The significant gap between the initial estimated value ($978.27 per $1,000) and the Original Issue Price ($1,000) underscores the economic cost embedded in these structured products. Investors who purchase at par value immediately face an unrealized loss if they were to liquidate at estimated value, though the Bank's statement regarding temporary secondary market repricing suggests this gap may narrow in the months following issuance. Retail investors should carefully evaluate whether the potential contingent coupon payments and upside participation justify the embedded costs, credit risk, and liquidity constraints.

Distribution and Conflict of Interest Arrangements

Scotia Capital (USA) Inc., an affiliate of The Bank of Nova Scotia, has agreed to purchase the notes at the Original Issue Price and resell them to Citigroup Global Markets Inc. as part of the distribution arrangement. Citigroup Global Markets Inc. may resell the notes to other dealers at a discount of up to the 1.50 percent discount received from Scotia Capital. Following the initial distribution, Scotia Capital may use this pricing supplement in market-making transactions in the notes and may serve as a principal buyer and seller in the secondary market.

The Bank's disclosure notes that unless explicitly informed otherwise, this pricing supplement should be understood to be used in market-making transactions. This arrangement creates an inherent conflict of interest, as Scotia Capital stands to profit from bid-ask spreads and repricing discretion in the secondary market while maintaining the ability to influence pricing through its internal valuation models and reimbursement discretion. Investors should be aware of these structural conflicts when considering secondary market transactions.