Bank of Nova Scotia Launches $12.5 Million Trigger Autocallable GEARS Linked to Nikkei 225 Index

Overview of the Autocallable GEARS Structure

The Bank of Nova Scotia issued senior unsecured debt securities marketed as Trigger Autocallable GEARS linked to the Nikkei 225 Index. The offering totaled $12,495,650 in principal amount, with each security priced at $10. The securities are designed to provide investors with conditional upside participation in positive performance of the Nikkei 225 Index while containing an automatic call feature that activates if the index closes at or above its initial level of 68,751.51 on the observation date scheduled for July 22, 2027.

The disclosure filing indicates that the securities do not pay periodic interest. Instead, returns to investors depend on the performance of the underlying Nikkei 225 Index and whether the automatic call feature is triggered during the investment period. The maturity date is set for July 17, 2031, with a final valuation date of July 15, 2031. Settlement of the securities is expected to occur on July 17, 2026, the second business day following the July 15, 2026 trade date.

Automatic Call Feature and Early Redemption Mechanics

A defining characteristic of these securities is the automatic call feature. According to the disclosure, if the closing level of the Nikkei 225 Index on the observation date equals or exceeds the autocall barrier—set at the initial level of 68,751.51—BNS will automatically redeem the securities. Upon an automatic call, investors receive a cash payment equal to the principal amount plus a call return based on the 20% call return rate applied to the principal.

If an automatic call occurs, no further payments are owed by BNS under the securities, and the investment terminates. The filing emphasizes that this automatic call feature means investors have no choice in whether to continue holding the securities if the underlying index remains at or above its starting level one year into the investment period. This structure transfers timing risk to investors, as they cannot maintain exposure to the Nikkei 225 if it remains stable or rises modestly.

Upside Participation Through Gearing Multiplier

For investors whose securities are not subject to automatic call, the filing discloses an enhanced upside exposure feature through a 1.85x upside gearing multiplier. If the Nikkei 225 Index finishes the investment period with a positive underlying return—defined as the percentage change from the initial level to the final level—BNS will pay investors a cash amount equal to the principal plus the underlying return multiplied by 1.85.

This gearing mechanism amplifies positive returns. For example, if the Nikkei 225 appreciates 10% from its initial level, investors would receive the principal amount plus a return of 18.5%. However, this enhanced upside applies only if the securities avoid automatic call and the index finishes the period with gains. The filing does not disclose any cap on the upside return, meaning the gearing effect applies to any positive return amount through maturity.

Contingent Principal Protection and Downside Risk

The securities offer contingent repayment of principal only under specific conditions. According to the disclosure, if the securities are not subject to automatic call and the underlying return is zero or negative, but the final level of the Nikkei 225 Index remains at or above the downside threshold of 51,563.63 (75% of the initial level), BNS will repay the full principal amount at maturity with no additional return.

However, the filing emphasizes that this principal protection is contingent and applies only if investors hold the securities to maturity. If the Nikkei 225 Index declines below the downside threshold of 51,563.63, investors receive a cash payment less than principal equal to the negative underlying return applied to the principal. The disclosure explicitly states that in such circumstances, investors could lose a significant portion or all of their principal investment. This downside exposure is identical to the percentage decline in the underlying index below the 75% threshold level.

Pricing and Embedded Costs

The Bank of Nova Scotia priced the securities at $10 per share for a total offering of $12,495,650. The underwriting discount totaled $312,391.25, or $0.25 per security, leaving net proceeds to BNS of $12,183,258.75, or $9.75 per security. The disclosure filing indicates that the initial estimated value of each security at the time terms were set on the trade date was $9.607 per principal amount, which was less than the $10 issue price to the public.

The filing references additional information regarding estimated value and liquidity, noting that the actual value of the securities at any time will reflect many factors and cannot be predicted with accuracy. The difference between the $10 issue price and the $9.607 estimated value suggests the securities contain embedded costs beyond the explicit underwriting discount. Scotia Capital (USA) Inc., identified as an affiliate of BNS, purchased the securities at principal amount and resold them to UBS Financial Services Inc. at the stated discount. UBS or its affiliates are conducting hedging activities for BNS in connection with the securities.

Credit Risk and Issuer Default Considerations

The filing emphasizes that any payment on the securities, including repayment of principal, is subject to the creditworthiness of The Bank of Nova Scotia. The disclosure explicitly warns investors that if BNS were to default on its payment obligations, investors may not receive any amounts owed under the securities and could lose their entire investment. This credit risk operates independently of the market risk related to the Nikkei 225 Index performance.

The securities are issued as senior unsecured debt obligations, meaning they are not backed by specific collateral and rank alongside other unsecured creditors of BNS in the event of financial distress. The filing notes that the securities are not insured by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other government agency of Canada, the United States, or any other jurisdiction. The securities are also not bail-inable debt securities under the Canada Deposit Insurance Corporation Act, meaning they would not automatically convert to equity in a bail-in scenario.

Distribution Arrangements and Secondary Market Considerations

The offering utilizes a distribution structure involving Scotia Capital (USA) Inc. and UBS Financial Services Inc. The filing indicates that Scotia Capital, as an affiliate of BNS, purchases the securities at principal amount and resells them to UBS at the discounted rate. UBS then conducts hedging activities for BNS related to the securities. The filing notes that these arrangements exclude any additional profits to UBS, BNS, or their affiliates beyond the stated underwriting discount.

The disclosure indicates that the securities are not listed or displayed on any securities exchange or electronic communications network, meaning they trade only in over-the-counter secondary markets if at all. The filing notes that trades in the secondary market generally settle in one business day (T+1) under SEC Rule 15c6-1, but the securities initially settle in two business days (T+2). Purchasers intending to trade the securities before one business day before delivery would need to arrange alternative settlement terms to prevent failed settlements.

Key Risks Disclosed in the Filing

The Bank of Nova Scotia emphasized in the disclosure that the securities are significantly riskier than conventional debt instruments and that investors are not necessarily protected by an obligation to repay principal at maturity. The filing explicitly states that the securities may have the same downside market risk as the underlying Nikkei 225 Index, layered on top of the credit risk inherent in purchasing an unsecured debt obligation of BNS.

The disclosure warns that investors could lose a significant portion or all of their investment in the securities. The filing places particular emphasis on the contingent nature of principal repayment, noting that it applies only to investors who hold the securities to maturity. Any early sale in the secondary market would result in a market price that reflects current value, which could be substantially below the principal amount. The filing advises that investors should not purchase the securities if they do not understand or are not comfortable with these significant risks.

Terms and Conditions Summary

The securities are offered with a minimum investment of $1,000 (100 securities at $10 each) and in integral multiples of $10 thereafter. The initial level of the Nikkei 225 Index was set at 68,751.51 on the trade date of July 15, 2026. The autocall barrier equals 100% of the initial level, the upside gearing is 1.85, and the downside threshold is 75% of the initial level, or 51,563.63.

The CUSIP number for the securities is 06419X596, and the ISIN is US06419X5968. The securities are governed by the terms set forth in the product supplement dated November 8, 2024, the underlier supplement dated November 8, 2024, the prospectus supplement dated November 8, 2024, and the base prospectus dated November 8, 2024. The filing indicates that all terms are subject to postponement in the event of a market disruption event, as described in the additional terms section of the offering documents.