Bank of Nova Scotia Launches Nasdaq-100 Linked Autocallable Securities Due 2031

Structure of Autocallable Debt Securities Linked to Technology Index

The Bank of Nova Scotia's Trigger Autocallable GEARS represent a structured debt product designed to provide investors with conditional exposure to movements in the Nasdaq-100 Index. The Securities are senior unsecured obligations of BNS, meaning they rank equally with other unsecured debt of the issuer and are not backed by specific collateral. The instrument combines multiple payoff scenarios based on the underlying index performance, creating a complex risk-return profile that differs substantially from conventional fixed-income securities.

The Securities do not pay periodic interest to investors. Instead, all compensation derives from the difference between the initial index level at trade and subsequent levels at specified observation and valuation dates. The preliminary pricing document indicates that the initial level will be established on the trade date of July 29, 2026, and this level serves as the reference point for all subsequent performance calculations throughout the five-year holding period.

Automatic Call Mechanism and Early Redemption Provisions

A defining feature of these Securities is the automatic call function, which allows BNS to redeem the instruments early if the Nasdaq-100 Index closes at or above its initial level on the observation date scheduled for August 5, 2027. Upon an automatic call, investors receive a cash payment equal to the principal amount plus a return based on the 12.75% call return rate, with no further obligations owed by the issuer thereafter. This mechanism limits investors' upside participation if the index rallies significantly in the first year.

The automatic call structure reflects the issuer's desire to manage its liability exposure while providing investors with a defined early exit opportunity. If the Securities are called, the transaction terminates completely and investors cannot participate in any subsequent index gains. The call return rate of 12.75% represents the maximum compensation available to investors if automatic call is triggered, regardless of how much higher the index rises above the initial level during the observation period.

Positive Performance Scenario and Upside Gearing Multiplier

If the Securities avoid automatic call and the Nasdaq-100 Index finishes above its initial level by the final valuation date on July 29, 2031, investors receive an enhanced return through the upside gearing feature. The gearing factor ranges between 1.30 and 1.50 times, meaning investors capture between 130% and 150% of any positive index return. For example, if the index rises 10% from initial to final level and gearing is set at 1.30, investors would receive the principal amount plus 13% (10% multiplied by 1.30).

The specific gearing rate within the 1.30 to 1.50 band will be determined on the trade date and reflects market conditions at the time of pricing. This leverage amplifies gains in positive scenarios but applies only if the Securities remain outstanding through maturity without being called early. The enhanced return compensates investors for accepting downside risk beyond what conventional bonds would carry, though the compensation is capped at the final valuation date.

Contingent Principal Protection and Downside Threshold Mechanics

The Securities incorporate a contingent principal protection feature that applies only if no automatic call occurs and the underlying index return is zero or negative. If the final index level remains equal to or above 75% of the initial level (the downside threshold), investors receive full principal repayment at maturity regardless of negative index performance. This threshold-based protection provides a floor that prevents partial losses in moderate decline scenarios.

However, if the index declines such that the final level falls below 75% of the initial level, the contingent protection expires and investors face full downside exposure. In these severe decline scenarios, the payment at maturity would equal the principal amount multiplied by the percentage decline in the index. The preliminary pricing document explicitly warns that investors could lose their entire investment if the index declines sharply enough, with the extent of loss determined by the index's decline below the downside threshold.

Credit Risk and Issuer Solvency Considerations

The Bank of Nova Scotia is a Canadian-based financial institution, and all payments under these Securities depend entirely on BNS's ability and willingness to pay. The preliminary pricing materials emphasize that any payment, including repayment of principal at maturity, remains subject to the creditworthiness of the issuer. If BNS were to default on its obligations, investors could lose their entire investment regardless of favorable index performance or the protective features built into the Securities structure.

This credit risk exists independently of and in addition to the market risk inherent in the index exposure. Investors bear both the risk that the Nasdaq-100 Index performs poorly and the separate risk that BNS fails to meet its payment obligations. The preliminary pricing 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, leaving investors without institutional protection against issuer default.

Investment Minimums, Pricing, and Settlement Mechanics

The Bank of Nova Scotia has set a minimum investment level of $1,000, equivalent to 100 Securities priced at $10 per unit. Investors may purchase amounts in excess of the minimum in integral multiples of $10. The preliminary pricing document indicates that the initial estimated value of the Securities at the time terms are set on the trade date is expected to fall between $9.295 and $9.595 per unit, below the $10 issue price to public.

Settlement is expected to occur on July 31, 2026, which represents the second business day following the expected trade date of July 29, 2026. The longer settlement timeline creates operational considerations for investors who might wish to trade the Securities in secondary markets shortly after purchase, as standard T+1 settlement requirements would create potential settlement conflicts. The preliminary pricing supplement specifically notes that purchasers intending to trade before settlement should arrange alternative settlement terms to avoid failed trades.

Valuation, Liquidity, and Secondary Market Considerations

The preliminary pricing materials explicitly state that the Securities will not be listed or displayed on any securities exchange or electronic communications network. This lack of listing significantly constrains liquidity, meaning investors who wish to sell before maturity may face difficulty finding buyers or may need to accept substantial price concessions. The preliminary pricing document warns that actual value at any future date cannot be predicted with accuracy and will reflect numerous market factors beyond index performance alone.

The estimated initial value of $9.295 to $9.595 per unit represents a discount to the $10 issue price, indicating that the Securities cost more than their estimated intrinsic value at pricing. This pricing structure reflects the embedded options, credit spread, and structural features of the product. Investors should recognize that this estimated value is preliminary and subject to change, and that secondary market prices may differ materially from both the issue price and the estimated value.

Key Observation and Valuation Dates Throughout the Security Term

The Securities incorporate multiple critical dates that trigger different analytical checkpoints. The first key date is the observation date of August 5, 2027, which determines whether the automatic call feature activates. This single observation point means investors have limited flexibility; they cannot benefit from index recoveries that occur after August 5, 2027 if the index has already triggered a call at that single moment. The preliminary pricing notes these as expected dates, meaning actual timing could vary slightly based on market conditions and operational circumstances.

The final valuation date of July 29, 2031 establishes the ending index level used to calculate returns for maturity payments. Combined with the maturity date four business days later on July 31, 2031, this final valuation date determines the underlying return that either applies gearing enhancement or triggers downside loss exposure. The five-year period between trade date and final valuation date represents the full duration investors must hold the Securities to capture the intended return profile, making these instruments illiquid and duration-sensitive investments.

Comparative Risk Profile and Investor Suitability Warnings

The preliminary pricing documentation repeatedly emphasizes that the Securities carry substantially greater risk than conventional debt instruments. Unlike a standard bond, the issuer is not necessarily obligated to return principal at maturity, and investors may experience losses equal to any decline in the Nasdaq-100 Index below the 75% downside threshold. This means investors face both the full downside market risk of an equity index and the additional credit risk of BNS, a combination that creates risk significantly exceeding traditional fixed-income products.

BNS has included explicit guidance that investors should not purchase the Securities if they do not understand or are uncomfortable with the significant risks involved. The preliminary materials reference detailed risk disclosures appearing across multiple supplementary documents, including risk factors specific to the notes, product-level risks, prospectus supplement risks, and general prospectus risk factors. Investors are directed to review these comprehensive risk disclosures before committing capital, as the preliminary pricing materials themselves serve only as an overview of the fundamental structure and key terms.