Bank of Nova Scotia Launches Auto-Callable Structured Notes Tied to Multiple Stock Indices

Structure and Contingent Coupon Mechanics

The Bank of Nova Scotia's structured notes are designed to deliver quarterly coupon payments contingent on the performance of all three underlying equity indices simultaneously. According to the disclosure, investors will receive a quarterly coupon of $25.40 per security (equivalent to 10.16% annualized) on each determination date—scheduled for November 2, 2026, February 1, 2027, April 30, 2027, August 2, 2027, November 1, 2027, January 31, 2028, May 1, 2028, and July 31, 2028—provided that all three underlying indices close at or above their respective coupon threshold levels of 70% of initial value. If the closing value of any single underlying index falls below this 70% threshold on a determination date, no contingent coupon will be paid for that period.

The all-or-nothing coupon structure creates a meaningful asymmetry for investors. Because payments depend on the worst-performing index among the three, weakness in even a single benchmark can eliminate quarterly income entirely, regardless of how the other two indices perform. The filing emphasizes that investors must be willing to accept the risk of receiving no contingent quarterly coupons during the entire two-year term of the securities. This structure differs materially from traditional fixed-income securities, where coupon payment is typically unconditional and not subject to market performance thresholds.

Automatic Redemption and Call Threshold Levels

The securities feature an automatic early redemption provision that activates when all three underlying indices simultaneously reach or exceed their respective call threshold levels—set at 100% of their initial index values—on any determination date prior to maturity. The disclosure states that if this condition is met, the securities will be automatically redeemed on the first contingent coupon payment date following that determination date for an amount equal to the stated principal of $1,000 plus the contingent quarterly coupon otherwise payable for that period.

This early redemption feature effectively caps investors' upside participation. Investors will not benefit from index gains beyond the call threshold level and will not realize returns beyond the contingent quarterly coupons received during the holding period. The filing indicates that no further payments will be made on securities once they have been redeemed early, meaning investors cannot benefit from potentially stronger performance in subsequent quarters. This built-in call feature reflects the issuer's interest in limiting its exposure to sustained index appreciation during the life of the securities.

Principal Risk and Downside Exposure

The Bank of Nova Scotia's disclosure explicitly states that these securities do not guarantee repayment of principal and offer no protection against losses. If the final index value of any underlying index falls below 70% of its initial value on the final determination date (July 31, 2028), investors will receive the stated principal amount plus an additional payment calculated as the stated principal amount multiplied by the underlying return of the worst-performing index. This formula means that payment at maturity could fall significantly below the initial $1,000 investment or potentially reach zero if an underlying index declines sufficiently.

The worst-performing index methodology creates concentrated risk. Because all calculations rely on whichever of the three indices shows the worst performance, a severe decline in any single index will determine the final payment even if the other two indices perform well. The filing illustrates this scenario: if the worst-performing index declines 50%, the payment at maturity will be approximately $500 per $1,000 invested, representing a 50% loss. Investors bear 1-to-1 downside exposure to the worst-performing index below the 70% threshold, making these instruments unsuitable for investors with low risk tolerance or short time horizons.

Underlying Indices and Initial Valuation

The securities reference three widely-tracked equity indices: the Nasdaq-100 Index (Bloomberg Ticker: NDX), the Russell 2000 Index (Bloomberg Ticker: RTY), and the S&P 500 Index (Bloomberg Ticker: SPX). Each index will have its own initial value set on the pricing date of July 31, 2026, and these starting values establish the baseline for all subsequent comparisons. The filing indicates that specific initial index values would be inserted in the final pricing supplement but does not provide the actual values in this preliminary document.

The choice of these three indices provides broad exposure to different equity market segments: the Nasdaq-100 emphasizes large-cap technology and growth stocks, the S&P 500 tracks large-cap equities across all sectors, and the Russell 2000 represents the small-cap segment. Using the worst-performing index means that weakness in any of these segments—whether in technology, diversified large-caps, or small-caps—can eliminate coupon payments or reduce principal recovery. This multi-index approach diversifies reference points but concentrates downside risk through the worst-performance mechanism.

Pricing and Investment Terms

The securities are issued at a stated principal amount of $1,000 per security with an issue price of $1,000. The filing indicates that the aggregate principal amount would be specified in final offering documents. The minimum investment required is $1,000, corresponding to one security. The pricing date is scheduled for July 31, 2026, with the original issue date set for August 5, 2026, representing a T+3 (three business day) settlement structure.

The filing notes that purchasers wishing to trade these securities in the secondary market prior to delivery may need to arrange alternative settlement terms to avoid failed settlements, since the initial T+3 settlement differs from the standard T+1 settlement convention for secondary market trades under SEC Rule 15c6-1. This settlement mechanics detail is important for investors planning to engage in active trading strategies and those seeking liquidity before the official delivery date.

Maturity Date and Contingent Coupon Payment Schedule

The securities have a stated maturity date of August 3, 2028, subject to postponement for certain market disruption events. The filing outlines eight determination dates spanning the two-year period, with corresponding contingent coupon payment dates falling a few business days after each determination date. The final determination date is July 31, 2028, one week before the maturity date, at which point the payoff at maturity will be calculated based on the closing values of all three indices.

The contingent coupon payment schedule follows a quarterly rhythm beginning November 5, 2026, and continuing through the maturity date. If all indices remain above their respective 70% thresholds on each determination date, investors will receive eight quarterly coupon payments of $25.40 each, totaling $203.20 in contingent income over the two-year period. However, as the filing emphasizes, investors must be prepared to receive zero coupon payments if any underlying index falls below its threshold on even a single determination date.

Credit Risk and Issuer Obligations

All payments on the securities are subject to the credit risk of The Bank of Nova Scotia. The disclosure states explicitly that if BNS were to default on its payment obligations, investors may not receive any amounts owed and could lose their entire investment in the securities. The Bank of Nova Scotia is the issuer of these senior unsecured debt securities under its Senior Note Program, Series A, meaning investors have no secured claim against any specific assets or collateral pool.

The filing notes that the securities are not secured obligations and investors will not have any security interest in or access to any underlying reference assets. This means investors' claims are limited to BNS's general creditworthiness and ability to meet its payment obligations. In a scenario where BNS's credit quality deteriorates, the secondary market value of these securities would likely decline regardless of index performance. This issuer credit risk compounds the market risk already embedded in the worst-performing index structure.

Registration and Regulatory Framework

The preliminary pricing supplement was filed pursuant to Rule 424(b)(2) and references Registration Statement No. 333-282565. The offering documents reference a base prospectus dated November 8, 2024, along with prospectus supplements, underlier supplements, and product supplements dated the same date. The filing indicates this is a preliminary pricing supplement subject to completion and notes that the company may not sell these securities until the final pricing supplement and accompanying offering documents are delivered in final form.

The structured investment is part of BNS's broader program for issuing structured notes tied to various underlying reference assets and indices. The regulatory framework requires that all offering documents—including the final pricing supplement with specific index values, call and coupon threshold levels, and aggregate principal amount—be completed and delivered to investors before any securities can be purchased. Investors reviewing this offering should wait for the final pricing supplement before making investment decisions, as material terms including the exact initial index values and aggregate offering size remain subject to change.

Investor Risk Considerations and Suitability

The Bank of Nova Scotia explicitly describes these securities as appropriate only for investors willing to risk their entire investment based on the worst-performing of three underlying indices and who seek the opportunity to earn interest at potentially above-market rates in exchange for the risk of receiving no interest over the entire two-year term. The filing emphasizes that investors will not participate in any increases of the underlying indices and will not realize returns beyond the contingent quarterly coupons, even if one or two indices perform strongly.

The compounding effect of using worst-performance mechanics combined with threshold-based coupon payments creates scenarios where investors receive no income while experiencing significant downside losses. For example, if all three indices decline 30%, investors receive no quarterly coupons throughout the holding period and will also suffer approximately 30% principal losses at maturity. The structured nature of these securities makes them unsuitable for investors seeking principal preservation, consistent income, or broad equity market participation. These instruments are designed for sophisticated investors with specific risk tolerances and return expectations aligned with the contingent income structure.