Bank of Nova Scotia Issues Five-Year Autocallable Notes Linked to Regional Banking and Energy ETFs

Structure and Payoff Mechanics of the Autocallable Notes

The Bank of Nova Scotia's new notes feature an autocallable structure that offers investors the possibility of early redemption if specified market conditions are met. Under the terms disclosed in the filing, the notes will be automatically called if the closing value of each reference asset on the review date reaches or exceeds its call value. In the event of an automatic call, investors will receive a cash payment equal to the principal amount plus an applicable call premium, and no further payments will be owed on the notes.

If the notes are not automatically called during their term, the payoff structure is determined by the performance of the least performing reference asset among the three underlying indices and ETFs. The filing discloses that investors will receive returns based on the positive performance of this worst-performing asset from its initial value to its final value, provided the final value exceeds the initial value. This mechanism effectively ties investor returns to the equity reference asset or index that underperforms the others, creating a "worst of" payoff structure that differs from traditional fixed-income investments.

Downside Protection and Buffer Features

The offering includes a contingent buffer provision designed to protect investors from partial losses. According to the disclosure, if the notes are not called and the final value of the least performing reference asset is equal to or less than its initial value but equal to or greater than its buffer value, investors will receive the full principal amount at maturity. The filing indicates the buffer is set at 30 percent below the initial value, providing meaningful downside protection within a defined range.

However, the filing clearly states that if the final value of the least performing reference asset falls below the buffer value, investors may face significant losses. Specifically, the disclosure indicates that investors will lose approximately 1.4286 percent of the principal amount for each 1 percent that the final value falls below the initial value in excess of the 30 percent buffer level. The filing explicitly warns that investors may lose up to 100 percent of the principal amount under adverse market conditions, highlighting the leveraged nature of losses that extend beyond the buffer threshold.

Reference Assets and Index Selection Rationale

The notes are structured to track three distinct reference assets reflecting different segments of the U.S. equity market. The inclusion of the State Street SPDR S&P Regional Banking ETF provides exposure to the regional banking sector, the S&P 500 Index offers broad market exposure, and the State Street Energy Select Sector SPDR ETF targets the energy sector. By linking returns to the least performing of these three assets, the structure exposes investors to downside risk concentrated in whichever sector underperforms the others during the note term.

This multi-asset linkage creates a complex risk profile. Investors benefit from the choice of reference assets only in scenarios where all three appreciate, but bear the full downside of the worst performer. The filing notes that the notes do not constitute a direct investment in any of these assets, and investors have no direct economic interest, claim, or entitlement to the underlying reference asset constituents, including no voting rights or rights to receive dividends or distributions.

Pricing and Initial Estimated Value

The notes are being offered at par, or 100 percent of the principal amount, with a minimum investment of $1,000 and subsequent investments in integral multiples of $1,000. However, the filing discloses that the initial estimated value of the notes at the time terms are set on the trade date is expected to range between $927.29 and $957.29 per $1,000 of principal amount. This valuation discount reflects the embedded costs associated with structuring, hedging, and distributing the notes.

The Bank disclosed that this initial estimated value was determined using its internal pricing models, which account for the Bank's internal funding rate on the trade date and assumptions about various market parameters. The filing explains that the original issue price exceeds the initial estimated value because the economic terms are based on the Bank's internal funding rate, underwriting commissions, and costs associated with selling and structuring the notes. The Bank's internal funding rate is described as typically lower than the rate the Bank would pay when issuing conventional fixed-rate debt securities, a factor that reduces the economic value delivered to investors at the time of purchase.

Secondary Market Liquidity and Valuation Considerations

The filing indicates that Scotia Capital (USA) Inc., an affiliate of the Bank, will purchase the notes from the Bank at the principal amount and distribute them to registered broker-dealers at that same price. The Bank disclosed that Scotia Capital may periodically pay third-party dealers a structuring fee of up to $2.50 per note for certain or all of the notes distributed through their channel. Scotia Capital is expected to use the final pricing supplement in market-making transactions in the notes after their initial sale.

The filing contains important disclosures about the temporary reimbursement of costs. The Bank disclosed that, assuming relevant factors remain constant after the trade date, the price at which Scotia Capital may initially buy or sell the notes in the secondary market might temporarily exceed the Bank's estimated value on the trade date. The Bank stated it may elect to reimburse investors a portion of estimated hedging costs and other transaction costs that will no longer be expected to be incurred over the note term. The filing indicates this temporary reimbursement period is expected to last approximately three months after the original issue date, though the Bank discloses that the specific duration was determined based on factors including the tenor of the notes and any agreements the Bank has with Scotia Capital and other participating dealers.

Credit Risk and Investment Considerations

The filing emphasizes that the notes are unsubordinated and unsecured debt securities of The Bank of Nova Scotia, meaning all payments on the notes are subject to the credit risk of the Bank. Investors have no recourse beyond the Bank's general creditworthiness, and 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 any other jurisdiction. This disclosure makes clear that purchasers bear direct credit exposure to the Bank alongside their market-linked exposure to the three reference assets.

The filing notes that the notes will not be listed on any U.S. securities exchange or automated quotation system, which may limit liquidity and price transparency for investors seeking to exit positions before maturity. The disclosure warns that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, and the Bank cautions that investors should carefully review the additional risks described in the document, particularly those relating to estimated value and liquidity.

Underwriting and Distribution Structure

The filing discloses the distribution arrangement through Scotia Capital, identifying potential conflicts of interest inherent in the offering process. Scotia Capital will purchase notes from the Bank at par and distribute them to broker-dealers at the same price, earning a structuring fee rather than a traditional underwriting commission. The preliminary nature of the pricing supplement means final terms, including the exact call value, initial value, and call premium, will be determined on the trade date of July 31, 2026, and communicated in the final pricing supplement delivered at settlement.

The filing notes that neither the SEC nor any state securities commission has approved or disapproved the notes or reviewed the accuracy and adequacy of the pricing supplement and accompanying documents. The preliminary status indicates that all material terms remain subject to change before the final pricing supplement is delivered.

Term, Settlement, and CUSIP Information

The notes are expected to price on July 31, 2026, and settle on August 5, 2026, creating an approximate five-year term if not called prior to maturity on the scheduled maturity date of August 5, 2031. The filing provides the CUSIP and ISIN identifiers for the notes as 063941ER5 and US063941ER54, respectively, enabling investors and market participants to identify and track the security.

The disclosure confirms that the notes do not bear interest or pay coupons prior to maturity, meaning returns are entirely dependent on the reference asset performance and the embedded call feature. All payments on the notes will be made in cash, and investors will not receive any equity interests or fractional shares of the underlying reference assets or their constituents.

Risk Factors and Investor Protections

The filing provides preliminary disclosure of multiple risk categories requiring investor review before committing capital. The preliminary pricing supplement directs investors to review "Additional Risks" beginning on page P-9 of the preliminary document, "Additional Risk Factors Specific to the Notes" in the accompanying product supplement, and "Risk Factors" in the accompanying prospectus supplement and prospectus. These sections address risks specific to linked-note structures, market volatility, liquidity constraints, and counterparty credit considerations.

The disclosure specifically highlights risks relating to estimated value and liquidity, warning that the initial estimated value may be significantly lower than the price paid at issuance, and that secondary market liquidity may be limited or unavailable. The filing cautions that the Bank's internal funding rate methodology and the structured nature of the notes result in investor economics that differ substantially from conventional fixed-income alternatives, with embedded costs that may not be fully transparent to retail investors.