Bank of Nova Scotia Issues Adobe-Linked Autocallable Notes Due 2027 With Contingent Coupon Structure

Structured Note Terms and Autocall Mechanism

The Bank of Nova Scotia's Autocallable Contingent Coupon Trigger Notes represent a complex derivative security with embedded equity exposure to Adobe Inc. The notes are designed with an automatic call feature that activates if the closing price of Adobe common stock equals or exceeds the initial price (established at the expected trade date of August 4, 2026) on any observation date commencing in February 2027 through August 2027. Should this condition occur, investors receive $1,000 principal per note plus the applicable contingent coupon on the corresponding payment date, expected to arrive three business days after the relevant observation date. This structure incentivizes early redemption if Adobe stock appreciates, effectively capping upside participation while the bank retains any gains beyond the strike level.

The observation dates for the notes occur on the fourth calendar day of each month, starting in September 2026 and ending in September 2027, with the final valuation date scheduled for September 7, 2027. This monthly cadence creates multiple opportunities for either automatic call execution or contingent coupon determination. The mechanics of the structure mean that investors face a binary outcome on each observation date: either the automatic call triggers (ending the note early with principal plus coupon), contingent coupons are earned (if the barrier is respected), or neither occurs, advancing the note toward maturity with the final payment structure determined by terminal price performance.

Contingent Coupon Payment Conditions and Barrier Level

The contingent coupon provision forms the core income component of these notes, offering $10.667 for each $1,000 principal amount on coupon payment dates corresponding to observation dates where Adobe's closing price remains at or above 57% of the initial price. This 57% barrier establishes a significant downside buffer before coupon payments cease; Adobe stock would need to fall more than 43% from the initial price level before contingent coupons are eliminated on subsequent payment dates. The potential annualized return from contingent coupons, if paid every month, reaches approximately 12.80% per annum, providing meaningful income to compensate for the structured product's embedded risks and the initial estimated value discount from par.

However, the contingent coupon structure creates a critical distinction: these payments are not guaranteed fixed coupons but rather are contingent on the stock barrier being maintained. If Adobe's closing price falls below 57% of the initial price on any observation date, no contingent coupon is paid on the corresponding coupon payment date. This conditional feature transforms the notes from a conventional bond-like instrument into an equity-linked product where income depends directly on Adobe's stock performance. Investors relying on consistent monthly income face potential disruption if Adobe experiences significant volatility or sustained declines, introducing reinvestment and cash flow uncertainty into portfolios holding these notes.

Downside Risk and Share Delivery at Maturity

If the notes remain uncalled at maturity and Adobe's closing price (the final price) falls below 57% of the initial price, the Bank of Nova Scotia's obligation shifts from cash repayment to physical share delivery. In this scenario, investors receive a number of Adobe shares equal to $1,000 divided by the initial price, with cash paid in lieu of fractional shares. This share delivery mechanism means investors effectively absorb the full percentage decline in Adobe's stock price from the initial level to maturity. Should Adobe experience a 60% decline from the initial price, for example, the delivered shares would be worth approximately $400 per $1,000 principal amount, representing a substantial loss of capital with no contingent coupon cushion.

The disclosure notes explicitly that if the final price falls below 57% of the initial price, the return on the notes is expected to be negative and will reflect the percentage decline in Adobe's stock from initial to final price. The Bank of Nova Scotia further cautions that any decline in Adobe's price from the final valuation date to the maturity date would reduce returns below what cash payment on the final valuation date would have provided, creating a timing risk for share-delivered positions. Additionally, if the share delivery amount is less than 1.0, investors receive cash equal to the product of the fractional share and the final price, with no contingent coupon. This downside structure represents a material risk for investors who do not believe Adobe stock will remain above the 57% barrier through September 2027.

Initial Estimated Value and Pricing Discount

The Bank of Nova Scotia has established an initial estimated value range for the notes of $925 to $955 per $1,000 principal amount, representing a discount of 4.5% to 7.5% from the 100% original issue price. This valuation gap reflects the embedded costs and risks incorporated into the structured product, including the bank's internal funding rate, underwriting commissions of up to 2.15%, structuring fees, and the cost of related hedging arrangements. The bank discloses that the original issue price exceeds the estimated value because the economic terms are based on the bank's internal funding rate plus additional transaction costs, which differ from fair market valuation of the embedded derivatives.

The estimated value was determined using the Bank of Nova Scotia's internal pricing models, which incorporate the bank's internal funding rate on the trade date and market parameter assumptions. The disclosure acknowledges that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, introducing uncertainty about secondary market prices. Investors should note that the Bank's internal funding rate is typically lower than the rate the bank would pay when issuing conventional fixed rate debt securities, suggesting that the structured product pricing benefits the bank while investors bear the structured product risks.

Underwriting and Distribution Structure

Scotia Capital (USA) Inc., an affiliate of the Bank of Nova Scotia, will purchase the notes from the bank for distribution to other registered broker dealers, creating a two-tier distribution channel. Goldman Sachs & Co. LLC is identified as a dealer in the offering, alongside Scotia Capital. The underwriting commission structure is capped at up to 2.15% of the original issue price, with the bank retaining at least 97.85% of proceeds. Scotia Capital or its affiliates may also engage in market-making transactions in the notes after their initial sale, introducing potential secondary market liquidity alongside the stated risk that the notes will not be listed on any U.S. securities exchange or automated quotation system.

The bank discloses potential conflicts of interest within this distribution arrangement, noting that unless explicitly stated otherwise in the sales confirmation, the pricing supplement may be used in market-making transactions. The bank also retains the right to issue additional notes after the final pricing supplement date at potentially different original issue prices and commission levels, creating the possibility that later investors may receive different economic terms than the initial issuance. This flexibility in future issuances suggests the bank views this product type as an ongoing component of its capital markets operations rather than a one-time offering.

Credit Risk and Unsecured Obligation Status

The notes are structured as unsubordinated and unsecured obligations of the Bank of Nova Scotia, meaning they are not backed by specific collateral and are subject to the bank's creditworthiness. The Bank of Nova Scotia's credit quality therefore becomes a material determinant of note value alongside the Adobe stock price performance. Unlike conventional bank deposits, these notes are explicitly stated as not insured by the Canada Deposit Insurance Corporation (CDIC) pursuant to the CDIC Act, nor are they covered by U.S. Federal Deposit Insurance Corporation coverage or any other government insurance program in Canada, the United States, or other jurisdictions. This absence of deposit insurance creates counterparty risk distinct from the equity-linked performance risk.

Any payment or delivery on the notes is expressly subject to the bank's creditworthiness, introducing the possibility that even if Adobe's stock performance would support payment or share delivery, the Bank of Nova Scotia's financial condition could affect investors' recovery. This dual-risk structure—combining equity reference asset risk with issuer credit risk—distinguishes these notes from direct equity investments and conventional bonds. Investors evaluating these notes must assess both Adobe Inc.'s operational prospects and the Bank of Nova Scotia's financial stability through the note maturity date of September 10, 2027.

Non-Ownership and Derivative Product Characteristics

The bank explicitly clarifies that the notes constitute derivative products based on Adobe's stock performance but do not represent direct investment in Adobe Inc. common stock. By acquiring these notes, investors do not obtain direct economic or other interest in, claim on, or entitlement to Adobe stock, including the absence of any voting rights or rights to receive dividends or other distributions from Adobe. This distinction is material because investors cannot benefit from Adobe dividend payments even if they hold the notes through ex-dividend dates, and they cannot exercise voting rights on Adobe shareholder proposals. The notes are synthetic exposures to Adobe's price performance only, stripped of equity ownership benefits.

This derivative structure also means that the notes' value derives from the Bank of Nova Scotia's internal pricing models and hedging arrangements rather than direct market quotations of Adobe shares. If the bank's hedging counterparties or internal funding conditions change, the secondary market value of the notes may not move in lockstep with Adobe's stock price, creating basis risk. The derivative nature further implies that these notes may exhibit different volatility and liquidity characteristics than direct Adobe share ownership, particularly in periods of market stress when the bank's credit spread widens or hedging market liquidity deteriorates.

Risk Factors and Investment Considerations

The disclosure document notes that investment in the notes involves certain risks and directs investors to detailed risk discussions beginning on page P-16 of the pricing supplement, page PS-6 of the product supplement, page S-2 of the prospectus supplement, and page 8 of the prospectus. While the specific risk narratives are not reproduced in this excerpt, the structure itself reveals several material risk categories. First, the contingent coupon structure creates income discontinuity risk if Adobe declines more than 43% from the initial price. Second, the share delivery mechanism at maturity exposes investors to the full downside of continued Adobe stock declines after the final valuation date through the maturity date.

Third, the automatic call feature caps upside participation if Adobe appreciates, though this can be viewed either as a limiting factor or as a stabilizing feature that provides downside coupon protection. Fourth, secondary market liquidity may be limited given that the notes are not listed on any U.S. securities exchange, potentially constraining investors' ability to exit positions prior to maturity. Fifth, the Bank of Nova Scotia's credit condition affects ultimate payment ability independent of Adobe's performance. Sixth, the bank's internal pricing models and assumptions may diverge from market consensus valuation, particularly as market conditions evolve during the 13-month holding period to maturity.

Use of Proceeds and Bank Funding Strategy

The offering allows the Bank of Nova Scotia to raise capital while transferring structured product risks to retail and institutional investors, with the bank retaining at least 97.85% of the gross proceeds. The bank's use of structured notes as a capital-raising tool reflects a broader strategic choice to fund operations and balance sheet positioning through derivative securities that embed the bank's funding costs plus structuring margins. By coupling the notes to Adobe's stock performance, the bank gains exposure management flexibility through hedging relationships while distributing the market risk to note investors. The structure demonstrates how financial institutions leverage internal pricing models and distribution capabilities to monetize structured product demand.

The bank's ability to issue additional notes at potentially different terms after the final pricing supplement suggests confidence in ongoing investor demand for equity-linked structured products and particularly for single-name equity exposures with contingent income features. The involvement of Goldman Sachs as a dealer alongside Scotia Capital indicates coordination with major financial intermediaries to ensure sufficient distribution channels and potential secondary market support. This capital-raising approach contrasts with conventional bond issuance by embedding performance-dependent payment obligations that reduce the bank's conventional fixed-rate debt burden while expanding the bank's derivative products business.

Regulatory Status and Investor Disclosure Framework

The notes are issued under Form 424B2 filing pursuant to Rule 424(b)(2) under the Securities Act, with registration number 333-282565. The pricing supplement is noted as preliminary as of the July 22, 2026 filing date, subject to completion and final pricing on the expected August 4, 2026 trade date. The bank and its underwriting partners have provided extensive cross-referenced disclosure documents, including a prospectus, prospectus supplement, product supplement, and pricing supplement, creating a layered regulatory compliance structure designed to provide investors with comprehensive information about the notes' terms, risks, and bank credit characteristics.

The disclosure explicitly notes that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes or passed upon the accuracy or adequacy of the pricing supplement and accompanying documents. The bank further cautions that any representation to the contrary would constitute a criminal offense. This language reinforces that SEC registration does not imply endorsement but rather reflects the bank's compliance with applicable disclosure and registration requirements. Investors should review all referenced documents, particularly the risk sections of the prospectus supplement and product supplement, before committing capital to these notes.