Bank of Nova Scotia Issues $11.5 Million Auto-Callable Structured Notes Linked to S&P 500 Performance

Structured Product Design and Redemption Mechanics

The Auto-Callable Trigger PLUS securities represent a complex derivative instrument combining equity upside participation with embedded downside risk. The notes incorporate an automatic early redemption feature that activates if the S&P 500 closes at or above its initial value of 7,457.69 on any determination date prior to the final maturity date. When this condition is met, holders receive $1,095.30 per security in cash and the investment terminates with no additional payments. The disclosure indicates that multiple determination dates exist throughout the two-year holding period, creating periodic opportunities for the early redemption trigger to activate.

If the securities remain outstanding through maturity on August 3, 2028, payoff depends on the final index closing value relative to three benchmarks: the initial value, the leverage threshold, and the trigger level of 5,966.152. The structure provides 125% leverage on upside gains, meaning investors capture 1.25 times any positive performance of the S&P 500 above its starting level. This magnified upside comes paired with substantial downside exposure below the 80% trigger level, where investors experience dollar-for-dollar losses once the index falls below that threshold. The disclosure indicates that potential loss could reach the full principal amount if the index experiences severe declines.

Principal at Risk and Loss Scenarios

The disclosure repeatedly emphasizes that these securities carry principal-at-risk characteristics distinguishing them from conventional debt instruments. Investors face total loss of their $1,000 stated principal per security if the S&P 500 declines more than 20% from its July 17, 2026 pricing level. The loss mechanics follow a 1-to-1 relationship: for every 1% the index falls below the trigger level, security holders lose 1% of their investment value. The filing states that under these loss scenarios, "the payment at maturity will be significantly less than the stated principal amount and could be as low as zero."

The securities offer limited protection only within a narrow performance band. If the final index value falls between the initial value and the trigger level, investors receive their full $1,000 principal back despite intermediate declines. However, this protection zone represents only a 20% window of the index's starting level. The disclosure indicates this limited protection applies exclusively to the maturity payment, with no interim protection during the two-year holding period. Notably, the estimated value per security on the pricing date was $968.94, representing a $31.06 discount to the $1,000 issue price, suggesting market pricing embedded material risk premium into the structure.

Index-Linked Performance and Leverage Mechanics

The underlying reference asset for these securities is the S&P 500 Index, tracked through Bloomberg Ticker "SPX," with the initial index value established at 7,457.69 as of the July 17, 2026 pricing date. The leverage factor of 125% applies exclusively to positive performance scenarios where the final index value exceeds the initial value at maturity. The filing defines underlying return as the percentage change from initial to final index value: (final index value − initial index value) divided by initial index value. This calculation determines both the magnitude of leveraged gains and, if applicable in loss scenarios below the trigger, the magnitude of losses applied against principal.

Scotia Capital Inc. serves as the calculation agent responsible for determining index closing values and making adjustments in circumstances where index values become unavailable. The filing references procedures under "General Terms of the Notes — Unavailability of the Closing Value of a Reference Asset; Adjustments to a Reference Asset," incorporated from the accompanying product supplement, though specific adjustment methodologies are not detailed in this pricing document. The disclosed leverage mechanism creates asymmetric payoff: investors receive 125% of index gains but face full principal loss if losses exceed 20%, exposing them to negative convexity in volatile market conditions.

Issuer Credit Risk and Unsecured Obligation Status

All payments on these securities depend entirely on the creditworthiness of The Bank of Nova Scotia, a Canadian financial institution. The securities constitute senior unsecured debt obligations under BNS's Senior Note Program, Series A, meaning they hold no collateral backing and investors possess no security interest in any underlying assets. The disclosure explicitly states that "if BNS were to default on its payment obligations, you may not receive any amounts owed to you under the securities and you could lose your entire investment in the securities." This credit risk compounds the structural risks inherent in the index-linked payoff mechanism, creating dual sources of potential loss for investors.

The securities are not insured by the Canada Deposit Insurance Corporation under the CDIC Act, nor are they covered by U.S. Federal Deposit Insurance Corporation protections or other government guarantee programs. The filing indicates these are uninsured investment products sold through Morgan Stanley Wealth Management. Investors relying on these securities face counterparty risk identical to holding unsecured senior notes from BNS, requiring confidence in the bank's financial stability and willingness to meet obligations regardless of index performance outcomes.

Distribution Channel and Commission Structure

Scotia Capital (USA) Inc., an affiliate of The Bank of Nova Scotia, serves as the agent for this offering, with Scotia Capital Inc. functioning as calculation agent. The distribution arrangement involves Morgan Stanley Wealth Management purchasing the securities from SCUSA at par value and reselling them to clients with embedded commissions. The total commission structure comprises a fixed sales commission of $20 per $1,000 principal and a fixed structuring fee of $5 per $1,000 principal, together totaling $25 per security or $286,950 across the $11.478 million aggregate issuance. These fees reduce the net proceeds to BNS to $11.191 million while establishing the security's entry cost at $1,000 per unit for investors.

The filing discloses a potential conflict of interest inherent in the distribution arrangement: both the calculation agent and the distribution agent are BNS affiliates, and Morgan Stanley Wealth Management receives fixed compensation per security sold regardless of subsequent performance. This structure may create incentives to emphasize attractive features (early redemption potential, 125% leverage) while de-emphasizing structural risks. The pricing document acknowledges these relationships but provides no detail on governance procedures ensuring calculation agent independence or impartiality in disputed valuation scenarios.

Settlement, Trading, and Liquidity Considerations

The securities settled on July 22, 2026, three business days after the July 17, 2026 pricing date, under T+3 settlement mechanics. This creates a practical constraint for secondary market trading: investors wishing to trade the securities before one business day prior to delivery must arrange alternative settlement terms to avoid failed trades under standard T+1 market conventions. The disclosure explicitly warns that "purchasers who wish to trade the securities in the secondary market on any date prior to one business day before delivery of the securities will be required, by virtue of the fact that the securities initially will settle in three business days (T+3), to specify alternative settlement arrangements to prevent a failed settlement of the secondary market trade."

The disclosure indicates the securities will not be listed or displayed on any securities exchange or electronic communications network, meaning secondary market trading, if any, would occur through over-the-counter negotiated transactions. The filing references "secondary markets (if any)" in multiple locations, suggesting BNS and Morgan Stanley do not commit to providing liquidity or maintaining a continuous secondary market. This illiquidity characteristic means investors should consider these securities as buy-and-hold investments through maturity or until an early redemption trigger occurs, rather than as liquid trading instruments. The estimated value of $968.94 per security at pricing suggests material illiquidity premiums embedded in the spread between issue price and estimated fair value.

Estimated Value Variance and Pricing Considerations

The pricing supplement discloses that the estimated value on the pricing date was $968.94 per stated principal amount, representing a $31.06 discount (approximately 3.1%) to the $1,000 issue price. This variance reflects the embedded cost of structural features: the leverage option, early redemption feature, and downside protection band all carry value that the pricing model attributes to investors but that BNS captures through the issue price markup. The filing explicitly cautions that "the actual value of your securities at any time will reflect many factors and cannot be predicted with accuracy," acknowledging that valuation models for structured products involve substantial uncertainty and that market prices may diverge significantly from theoretical estimates.

The disclosure directs investors to "Risk Factors — Risks Relating to Estimated Value and Liquidity" on page 10 for additional information about valuation risk. This reference indicates the full prospectus contains more detailed analysis of how estimated values are calculated and the limitations and assumptions underlying such calculations. The substantial gap between estimated value and issue price suggests investors should seek independent valuation opinions before committing capital, as the disclosed estimated value implies embedded structuring costs that exceed the stated $25-per-security commission. The filing indicates no regulatory body has approved or endorsed the valuation methodology or estimated value figure.

Product Supplement References and Determination Date Mechanics

This pricing supplement incorporates by reference multiple prior disclosure documents: the prospectus dated November 8, 2024, prospectus supplement dated November 8, 2024, underlier supplement dated November 8, 2024, and product supplement dated November 8, 2024. The filing references detailed procedures for handling market disruption events, valuation dates, and adjustments to reference asset closing values contained in the product supplement's "General Terms of the Notes" section. Specific determination dates prior to the final determination date of July 31, 2028, are referenced in a table in the pricing document, though the table itself indicates these dates are subject to postponement for non-trading days and certain market disruption events.

The early redemption payment table shows determination dates at specified intervals, with each determination date potentially triggering the $1,095.30 early redemption payment if the S&P 500 closing value equals or exceeds 7,457.69. The disclosure indicates multiple opportunities exist for early termination throughout the two-year period, but does not specify exact calendar dates in this pricing supplement. Investors must refer to the accompanying product supplement for the complete determination date schedule. The market disruption event procedures referenced in the product supplement potentially allow BNS to postpone valuation dates, which could extend the effective holding period beyond the stated August 3, 2028 maturity date if market conditions warrant such postponement.

Regulatory Status and Investor Protections

The disclosure contains explicit language that "neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this document, the accompanying product supplement, the underlier supplement, the prospectus supplement or the prospectus." This statement reflects the securities' status as products offered under the bank note exemption framework rather than as securities subject to formal SEC approval. The securities were offered pursuant to Rule 424(b)(2) under the Securities Act of 1933, indicating they were registered under an effective registration statement filed with the SEC but not subject to pre-approval of terms.

The disclosure provides no representation regarding any secondary market making commitments, investor protection insurance, or regulatory oversight of trading practices. The offering documents serve primarily to disclose material terms and risks rather than to certify security quality or fair pricing. Investors relying on these securities should conduct independent due diligence regarding BNS's financial condition, creditworthiness, and the appropriateness of structured products for their investment objectives, as no regulatory body has independently assessed these factors or endorsed the offering.

Registration Details and Legal Framework

The securities were issued under The Bank of Nova Scotia's Senior Note Program, Series A, registered under Registration Statement No. 333-282565 filed with the Securities and Exchange Commission. The pricing supplement filed pursuant to Rule 424(b)(2) represents the specific offering terms for this $11.478 million tranche, issued under the umbrella registration statement and prior prospectus documents. The CUSIP number 06419TJD1 and ISIN number US06419TJD19 provide standardized identifiers for the securities in settlement and reference systems. The minimum investment amount is $1,000, representing one security, with aggregate issuance totaling 11,478 securities.

The securities mature on August 3, 2028, subject to postponement in the event of market disruption events as described in the product supplement. The original issue date of July 22, 2026, established the commencement of the two-year measurement period, with index value determinations beginning from the pricing date's closing level of 7,457.69. The legal framework governing these securities incorporates federal securities law requirements for registered offerings, Bank Secrecy Act compliance, and potential state blue sky law considerations. However, the narrow, sophisticated investor base targeted by Morgan Stanley Wealth Management likely reflects state-level exemptions or compliance with accredited investor standards in most jurisdictions.