Bank of Nova Scotia Issues Five-Year Autocallable Notes Linked to Autodesk, Air Products, and Uber Stock Performance

Structured Note Design and Reference Assets

The Bank of Nova Scotia's new Notes represent a derivative product structured around three distinct reference assets: the common stock of Autodesk Inc., the common stock of Air Products and Chemicals Inc., and the common stock of Uber Technologies Inc. Investors do not acquire direct ownership of these underlying equities through the Notes; instead, cash payments at maturity or upon early call depend entirely on the price performance of these three stocks measured against their initial values established on the trade date.

The Notes employ a "least performing" mechanism, meaning the final payout calculation uses the reference asset that experiences the lowest percentage return from inception to maturity. This structure concentrates risk on whichever of the three stocks underperforms most significantly over the five-year term. The filing discloses that if all three reference assets reach or exceed their designated call values on the specified review date, the Notes will be automatically called and redeemed early, providing investors with the principal amount plus an additional call premium and eliminating further obligations.

Return Profile and Upside Leverage

When the Notes are not called early and the least performing reference asset appreciates relative to its initial value, the note holder receives enhanced returns through a 200% multiplier on positive performance. This leverage structure means a 1% gain in the least performing stock translates to a 2% return at maturity, effectively doubling the equity upside. The filing states that if the Notes avoid automatic call and final performance is positive, investors receive a cash payment equal to principal plus 200% of the documented gain.

This amplified return structure applies only when the least performing stock finishes the term higher than where it started. The doubling mechanism is designed to compensate investors for accepting the credit risk associated with an unsecured debt obligation of the Bank and for the embedded optionality costs priced into the original issue. However, investors receive no interest payments or coupons during the five-year holding period; all compensation derives entirely from the structured payoff mechanism tied to equity performance.

Downside Protection Mechanism and Buffer Level

The Notes incorporate a 40% buffer against declines in the least performing reference asset, providing partial downside protection in the event of adverse price movements. If the least performing asset finishes the term at or above the buffer level—that is, no more than 40% below its starting value—investors receive their full principal amount at maturity with no loss, regardless of the actual decline in the underlying stock price. This buffer effectively neutralizes losses of up to 40% in the worst-performing equity without affecting the note holder's capital.

Once declines in the least performing asset exceed the 40% buffer threshold, losses accelerate significantly. The filing discloses that for each 1% the least performing reference asset falls below its initial value in excess of the 40% barrier, note holders lose approximately 1.6667% of principal. This loss multiplier means a 50% decline in the least performing stock would result in approximately a 16.67% loss of principal (representing the decline beyond 40% multiplied by the 1.6667 factor), and losses could theoretically reach 100% of principal if the underlying asset declines sufficiently.

Automatic Call Feature and Early Redemption

The Notes incorporate an automatic call mechanism triggered on a single review date specified in the final pricing supplement. If the closing value of each of the three reference assets equals or exceeds its respective call value on that review date, the Notes will be automatically redeemed prior to maturity. In such a call scenario, investors receive a cash payment equal to the principal amount plus a call premium, with no further obligations or payments owed on the Notes thereafter.

This early redemption feature significantly impacts the investment horizon and expected return profile. Investors cannot control whether the automatic call is triggered; it depends entirely on whether all three stocks simultaneously reach or surpass their designated call thresholds. If called, investors lose any remaining opportunity to benefit from continued appreciation in the reference assets beyond the call date, though they do receive the predetermined call premium that compensates for the shortened holding period.

Valuation Gap and Estimated Value Range

The Bank of Nova Scotia disclosed that the initial estimated value of the Notes at trade date is expected to fall between $926.19 and $956.19 per $1,000 of principal amount, representing a significant gap below the 100% original issue price. This valuation differential exists because the price investors pay reflects the Bank's internal funding rate, underwriting costs, and hedging expenses associated with the structured product. The filing explains that the Bank's internal funding rate—the rate at which the Bank funds the cost of issuing market-linked notes—incorporates these cost components, which consumers ultimately bear through the difference between issue price and immediate estimated value.

The filing states that the Bank's internal funding rate is typically lower than the borrowing costs the Bank would face when issuing conventional fixed-rate debt securities. This internal cost structure reduces the economic terms available to note investors compared to what they might receive in alternative product structures. The estimated value range represents the Bank's assessment of fair value using internal pricing models that incorporate the Bank's funding rate on the trade date and assumptions about market parameters on that date.

Secondary Market Pricing and Temporary Reimbursement Period

The Bank of Nova Scotia disclosed that assuming all relevant factors remain constant after the trade date, the price at which Scotia Capital (USA) Inc. (SCUSA), the Bank's affiliate, may initially purchase or sell Notes in the secondary market could temporarily exceed the estimated value calculated on the trade date. This temporary premium period is expected to last approximately three months following the original issue date and reflects the Bank's discretionary decision to effectively reimburse investors a portion of the estimated hedging and structuring costs that the Bank will no longer expect to incur over the Notes' remaining life as market time decay occurs.

The filing clarifies that this reimbursement approach and the duration of the temporary premium period were determined by the Bank based on multiple factors, including the tenor of the Notes and any agreements with SCUSA and other participating dealers. The amount of costs effectively reimbursed may not be distributed ratably throughout the reimbursement window, and the Bank reserves the right to discontinue the reimbursement at any time or alter the period's duration based on subsequent changes in market conditions and other unpredictable factors.

Credit Risk and Unsecured Debt Status

The Notes are explicitly structured as unsubordinated and unsecured debt obligations of The Bank of Nova Scotia, meaning all payments depend entirely on the Bank's ability and willingness to meet its obligations at maturity or upon call. Investors bear the full credit risk of the Bank itself, separate from the market risk associated with the three reference assets. Should the Bank experience financial distress or insolvency, note holders would be unsecured creditors with no guarantee of recovery beyond their claim against the Bank's general assets.

The filing states that the Notes do not constitute a direct investment in any reference asset and confer no ownership, voting rights, or entitlement to dividends from Autodesk, Air Products, Uber, or any other underlying company. Investors acquire only a contractual claim against the Bank for cash payments determined by the price performance of the reference assets. The notes are not insured by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other government agency in Canada, the United States, or elsewhere.

Pricing Timeline and Minimum Investment Requirements

The Bank expects the Notes to price on July 24, 2026, with settlement occurring on July 29, 2026, establishing the initial five-year term through July 29, 2031, assuming no early automatic call occurs. The minimum investment required is $1,000, with additional purchases in integral multiples of $1,000. The Notes are identified by CUSIP 063941DG0 and ISIN US063941DG09 and are expected to carry an original issue price of 100% of principal amount with zero underwriting commissions.

The filing indicates that Scotia Capital (USA) Inc. will initially purchase the Notes from the Bank at principal amount and subsequently distribute them to other registered broker-dealers at the same price. The Bank may periodically pay third-party dealers a structuring fee of up to $2.50 per Note for certain portions of the offering. The Notes will not be listed on any U.S. securities exchange or automated quotation system, indicating a limited secondary market structure beyond any making activities undertaken by SCUSA or its affiliates.

Distribution and Market-Making Arrangements

The filing discloses that SCUSA, the Bank's affiliate, intends to use the final pricing supplement in market-making transactions for the Notes following their initial issuance to investors. Unless the Bank, SCUSA, or another affiliated seller explicitly states otherwise in the confirmation of sale provided to investors, this pricing supplement should be understood as relating to a market-making transaction. The presence of an affiliate as both the distributor and potential market maker creates conflicts of interest that investors should carefully consider.

The Bank acknowledges that market-making activity by SCUSA serves the Bank's commercial interests by providing secondary market liquidity and supporting the Notes' perceived value, though such activity is discretionary and not guaranteed to continue. Investors considering the purchase of these Notes should understand that any secondary market trading may be facilitated by an entity with direct financial interest in the Notes' performance and pricing, potentially affecting the availability and pricing of liquidity.

Risk Considerations and Valuation Uncertainty

The filing emphasizes that investment in the Notes involves multiple layers of risk extending beyond the traditional equity market risk of the three reference assets. The estimated value of the Notes at the time terms are set on the trade date will be less than the original issue price, creating an immediate economic disadvantage for investors who must pay 100% of principal while receiving estimated value between 92.62% and 95.62% of that amount. The actual value of the Notes at any subsequent time will reflect numerous factors and cannot be predicted with accuracy, according to the Bank's disclosure.

Additional risks identified in the filing include the credit risk of the Bank, the leverage embedded in the return multiplier structure, the concentration of loss exposure on the least performing asset, the possibility of early redemption via the automatic call mechanism, and the limited secondary market liquidity compared to exchange-traded equities. The filing directs investors to review detailed risk disclosures in the accompanying product supplement, prospectus supplement, and prospectus for comprehensive analysis of all material risks.