Bank of Nova Scotia Issues Buffered PLUS Securities Linked to S&P 500 Index With Leveraged Upside and Capital Protection Buffer

Structure and Payoff Mechanics of the Buffered PLUS Securities

The Buffered PLUS notes issued by Bank of Nova Scotia represent a structured investment product with three distinct performance scenarios tied to the S&P 500 Index. In the first scenario, if the index closes higher on the valuation date than on the pricing date, investors receive their $1,000 stated principal plus a leveraged upside payment calculated at 150% of the underlying index return. However, this upside gain is capped at a maximum payment of $1,194.10 per note, limiting the upside benefit to 19.41% above the principal amount. This maximum cap applies regardless of how much the underlying index appreciates.

The second scenario applies when the index declines but by no more than 10%, the defined buffer amount. In this situation, investors receive their full $1,000 principal plus a positive return equal to the absolute value of the percentage decline, effectively converting a negative index performance into a positive investment return. However, this absolute return feature does not leverage the inverse performance and is capped at a maximum total payment of $1,100 per note. The third and most disadvantageous scenario occurs when the index falls more than 10% below its initial value. In this case, investors experience losses on a one-to-one basis with the index decline beyond the buffer threshold, potentially losing up to 90% of their stated principal amount if the index declines 90% or more from its starting level.

Principal-at-Risk Features and Investor Loss Potential

The disclosure emphasizes that the Buffered PLUS securities do not guarantee the return of full principal at maturity and carry substantial downside risk beyond the 10% buffer threshold. Investors could lose up to 90% of their investment if the S&P 500 Index experiences a decline of that magnitude or greater below the initial index value established on the pricing date. The filing explicitly states that the minimum payment at maturity is only 10% of the stated principal amount, meaning that in a severe market downturn scenario, investors could recover only $100 per $1,000 invested. This principal-at-risk structure differentiates these notes from traditional fixed-income securities and requires investors to accept significant downside exposure in exchange for the upside leverage and buffer benefits offered within the defined performance ranges.

All payments on the Buffered PLUS securities remain subject to the full credit risk of The Bank of Nova Scotia. The disclosure notes that if BNS were to default on its obligations, investors may not receive any amounts owed and could lose their entire investment. The notes are senior unsecured debt securities without any security interest in underlying reference assets, meaning investors have no collateral or priority claim beyond BNS's general creditworthiness. These credit risk considerations compound the market risk embedded in the structured product design and represent an additional layer of risk that investors must evaluate alongside the index performance dynamics.

Pricing, Issue Terms, and Distribution Arrangement

The preliminary pricing supplement dated July 16, 2026, indicates a stated principal amount of $1,000 per Buffered PLUS with an issue price equal to the stated principal. The pricing date is scheduled for July 31, 2026, with the original issue date set for August 5, 2026, representing a three-business-day settlement arrangement. A minimum investment of $1,000 per note applies, making the product accessible to retail and institutional investors with modest capital commitments. The notes carry no coupon and do not pay periodic interest; all economic value derives from the indexed payoff calculation at maturity on August 3, 2028.

The distribution structure involves Scotia Capital Inc. as the calculation agent, with Scotia Capital (USA) Inc. serving as the agent. Morgan Stanley Wealth Management is responsible for selling the securities and receives a fixed sales commission of $20 per $1,000 stated principal amount plus a fixed structuring fee of $5 per $1,000 stated principal amount, totaling $25 in fees and commissions per note. This means the issuer retains net proceeds of $975 per $1,000 stated principal amount sold. The company did not disclose the aggregate principal amount being offered in this preliminary pricing supplement, as such figures are typically finalized at the time of final pricing.

Estimated Value and Secondary Market Considerations

The filing discloses that the estimated value of the Buffered PLUS securities on the pricing date is expected to range between $932.35 and $962.35 per $1,000 stated principal amount, which represents a significant discount to the $1,000 issue price. This estimated value reflects the cost of the embedded derivatives, leverage features, and buffer protection built into the structured product. The actual value of the notes at any given time will reflect numerous factors and cannot be predicted with accuracy, as stated in the disclosure. The spread between the issue price and estimated trading value on the pricing date represents the implicit cost of the structured features to investors and highlights the importance of understanding the economic mechanics of the product before purchase.

The Buffered PLUS notes will not be listed or displayed on any securities exchange or electronic communications network, meaning there is no guaranteed marketplace for secondary trading. Investors who purchase these notes should be prepared to hold them until maturity on August 3, 2028, absent any negotiated secondary transactions with other investors or dealers. The filing notes that purchasers wishing to trade the notes in the secondary market prior to one business day before delivery will be required to specify alternative settlement arrangements due to the three-business-day initial settlement timing, which differs from standard T+1 settlement in equity markets. This settlement complexity adds practical constraints on the liquidity and tradability of the securities in any informal secondary market.

Index Valuation Mechanics and Market Disruption Provisions

The initial index value is determined by the closing value of the S&P 500 Index (Bloomberg ticker: SPX) on the pricing date, July 31, 2026, as calculated by Scotia Capital Inc. The final index value is similarly determined by the closing value of the S&P 500 Index on the valuation date, July 31, 2028, subject to postponement in the event of a market disruption event. The filing references adjustment provisions described in accompanying product supplement documentation for circumstances involving unavailability of the closing value of the reference index or alternative calculation methodologies, though the specific details of these adjustments are not elaborated within the preliminary pricing supplement itself.

The underlying return is calculated as the simple formula of (final index value minus initial index value) divided by the initial index value, expressed as a percentage. This straightforward calculation methodology means that the payoff depends directly on the point change in the S&P 500 Index over the two-year holding period. The absolute underlying return, used in the buffer scenario, applies the absolute value of this percentage change, converting negative returns into positive values for the purpose of calculating the enhanced return in the 0% to -10% performance range. Investors should note that the index valuation relies on official closing prices and is subject to calculation agent determination, with potential adjustments if normal market conditions are disrupted.

Product Design for Specific Investor Objectives

The Bank of Nova Scotia disclosure characterizes the Buffered PLUS as appropriate for investors who seek index-based returns and are willing to risk their principal and forgo current income. Specifically, the target investor is willing to accept losses on principal and cap upside gains above the maximum 19.41% return in exchange for the upside leverage, buffer, and absolute return features that apply to a limited range of the underlying index performance. This positioning acknowledges that the product involves trade-offs: the 150% leverage on upside gains and the inverted positive return in modest declines come at the cost of capped maximum gains and substantial downside exposure beyond the 10% buffer.

The notes pay no interest or coupon during their two-year term, requiring investors to rely entirely on the final index-based payoff calculation for investment returns. This zero-coupon structure means the product appeals to investors with a specific outlook on S&P 500 performance over the 2028 maturity period and who do not require intermediate cash flows or current income. The filing notes that the Buffered PLUS are principal-at-risk securities, distinguishing them from capital-protected notes or traditional bonds, and emphasizes that investors must be comfortable accepting the possibility of significant losses if S&P 500 performance disappoints materially.

Credit Risk, Regulatory Status, and Insurance Considerations

The disclosure explicitly warns investors that all payments on the Buffered PLUS are subject to the credit risk of The Bank of Nova Scotia. If BNS were to default on its payment obligations, investors may not receive any amounts owed and could lose their entire investment. As senior unsecured debt securities within BNS's Senior Note Program, Series A, these notes have no special security or collateral backing and rank pari passu with other unsecured debt obligations of the bank. Investors bear the full counterparty credit risk of a major Canadian financial institution, and the creditworthiness of BNS directly impacts the probability of receiving contractually promised payments at maturity.

The filing notes that the Buffered PLUS securities are not insured by the Canada Deposit Insurance Corporation (CDIC) pursuant to the CDIC Act, nor are they insured by the U.S. Federal Deposit Insurance Corporation or any other government agency of Canada, the United States, or any other jurisdiction. This absence of deposit insurance is noteworthy because BNS is a bank, and some retail investors may incorrectly assume that bank-issued securities carry government insurance protection similar to bank deposits. The explicit statement in the disclosure that neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities reinforces that regulatory approval is not a guarantee of the security's value or suitability for any particular investor.

Offering Details and Product-Specific Risk Factors

The preliminary pricing supplement is dated July 16, 2026, and is filed pursuant to Rule 424(b)(2) under the Securities Act of 1934, referencing a registration statement number 333-282565. The document accompanies and is contingent upon delivery of the final product supplement, underlier supplement, prospectus supplement, and prospectus, collectively referred to as the "Offering Documents." The preliminary nature of the pricing supplement means that terms disclosed herein are subject to change before final pricing and execution. The filing explicitly notes that the information provided is not complete and may be changed, and that the offering documents are not an offer to sell these securities until they are delivered in final form.

Each Buffered PLUS security carries a CUSIP number of 063941CS5 and an ISIN of US063941CS55, enabling identification and settlement in the financial system. The notes involve risks not associated with ordinary debt securities, and the filing directs investors to the full "Risk Factors" section in the accompanying documents for comprehensive disclosure of product-specific risks. The estimated value range of $932.35 to $962.35 per $1,000 principal, representing approximately a 6.8% to 7.7% discount to par, reflects the embedded option costs and structuring expenses embedded in the product. This significant initial value discount is material for investors to understand, as it represents an implicit charge for obtaining the leverage and buffer features at issue.

Conflicts of Interest and Secondary Market Constraints

Scotia Capital (USA) Inc., which serves as the agent and is an affiliate of The Bank of Nova Scotia, occupies a dual role as issuer representative and distribution participant. This related-party relationship creates potential conflicts of interest that investors should consider carefully. SCUSA purchases the Buffered PLUS at the stated principal amount and sells all securities to Morgan Stanley Wealth Management at an underwriting discount reflecting the sales commission and structuring fee. Morgan Stanley Wealth Management retains both the fixed sales commission and structuring fee, creating incentives aligned with completing sales rather than ensuring optimal pricing for individual investors.

The filing notes that these notes will not be listed or displayed on any securities exchange or electronic communications network, severely limiting secondary market liquidity. Investors interested in exiting their positions before maturity would need to negotiate directly with other investors or dealers, with no transparent pricing or guaranteed market. This illiquidity constraint is particularly significant given the two-year maturity period and the principal-at-risk structure. An investor facing an unexpected need for capital cannot rely on a public market to establish fair value or complete transactions efficiently. The three-business-day settlement timeline (T+3) on initial issuance creates practical complications for any attempted secondary trading before delivery is complete, as trades in the secondary market typically settle T+1 under standard market conventions.