Bank of Nova Scotia Issues $16.89 Million Structured Notes Linked to S&P 500 Performance Through January 2028

Structured Product Design and Return Mechanics

The Bank of Nova Scotia's newly issued Capped Enhanced Participation Notes represent a derivative investment product where returns depend entirely on the performance of the S&P 500 Index between the trade date (July 16, 2026) and the valuation date (January 18, 2028). The notes do not pay interest and provide no interim payments prior to maturity. The pricing supplement discloses that if the S&P 500 Index closes higher on the valuation date than its opening level of 7,533.77, investors will receive enhanced returns based on a 300% participation rate applied to the percentage gain in the index.

The payout structure incorporates a maximum payment cap of $1,197.70 for each $1,000 principal amount invested. This cap means that even if the S&P 500 Index experiences gains exceeding approximately 19.77%, investors will not receive returns beyond this predetermined ceiling. The pricing supplement indicates that if the final index level equals the initial level, note holders will receive their principal back in full. However, if the index declines, the notes provide no downside protection, and investors will lose principal on a one-to-one basis with negative index performance, with the potential for complete loss of the investment.

Offering Size, Pricing, and Underwriting Terms

The Bank of Nova Scotia priced this offering at 100% of principal amount, generating total gross proceeds of $16.89 million. The pricing supplement shows that Scotia Capital (USA) Inc. and Goldman Sachs & Co. LLC served as underwriters and dealers for the distribution. The underwriting commission amounted to 1.13% of the total offering size, or approximately $190,857, resulting in net proceeds to the bank of $16.70 million after underwriter compensation.

The initial estimated value of the notes at the time pricing was finalized on July 16, 2026, was $974.00 per $1,000 principal amount—a figure materially below the original issue price of par. The pricing supplement indicates this valuation reflects the Bank's internal pricing models, which incorporate the bank's internal funding rate and assumptions about market parameters at the time of pricing. The bank notes that the original issue price exceeds the initial estimated value due to the spread between the bank's internal cost of funds and the economic terms of related hedging arrangements.

Credit Risk and Issuer Dependence

All payments on the notes remain subject to the creditworthiness of The Bank of Nova Scotia. The pricing supplement explicitly states that the notes are unsubordinated and unsecured obligations of the bank and do not benefit from deposit insurance protection through the Canada Deposit Insurance Corporation (CDIC), the U.S. Federal Deposit Insurance Corporation (FDIC), or any other government agency. Investors bear the full credit risk of the issuing bank throughout the note's two-year term.

The disclosure emphasizes that deterioration in the bank's financial condition or credit rating could materially impact the value of the notes and the ultimate payment received at maturity, independent of the actual performance of the S&P 500 Index. Since the notes represent unsubordinated obligations, investors would rank pari passu with other general creditors of the bank in any insolvency event. This credit exposure is distinct from and in addition to the market risk tied to index performance.

Secondary Market Value and Market-Making Practices

The pricing supplement discloses that Goldman Sachs & Co. LLC may, but is not obligated to, provide market-making services and liquidity for the notes following their initial distribution. If Goldman Sachs chooses to make a market, the prices at which it would initially buy or sell notes in the secondary market would be based on its internal pricing models plus an initial adjustment of $25.00 per $1,000 principal amount. This additional amount will decline to zero on a straight-line basis through October 15, 2026, after which pricing will reflect only the estimated market value determined by the dealer's models.

The pricing supplement cautions that the actual value of the notes will reflect many factors and cannot be predicted with accuracy. The document notes that the notes will not be listed on any U.S. securities exchange or automated quotation system, meaning any secondary market transactions would occur over-the-counter through registered broker-dealers. Investors should be aware that bid-ask spreads applied by market-makers represent additional costs that will reduce realized returns on any secondary market sale prior to maturity.

Participation Rate and Performance Measurement

The enhanced participation rate of 300% represents the magnification applied to positive index returns. The pricing supplement explains that if the S&P 500 Index rises by a given percentage from its initial level, the note return will equal three times that percentage gain, subject to the maximum payment cap. This magnified upside participation comes at the cost of accepting full downside exposure without any protective floor or buffer against index declines.

The note's return calculation focuses exclusively on price return of the index and does not include any dividend component. The pricing supplement clarifies that investors are not acquiring direct ownership of index constituent stocks and therefore receive no dividend income that might otherwise accrue to shareholders of those companies. The performance measurement uses only the closing levels on the trade date and valuation date; interim index movements have no impact on the final payment determination.

Absence of Ownership Rights and Equity Claims

The pricing supplement explicitly states that acquiring these notes does not grant investors direct economic interest in or beneficial ownership of any shares, units, or securities that comprise the S&P 500 Index. Investors hold no voting rights, dividend entitlements, or other security holder rights associated with the underlying index constituents. The notes are derivative products designed to provide economic exposure to index price performance without the attendant shareholder rights and responsibilities.

This structure means investors cannot exercise any control over the companies in the index or participate in corporate actions such as special dividends, stock splits, or mergers that might benefit direct equity holders. The notes represent a pure bet on the directional price movement of the index within a defined time frame, with returns constrained by the capped maximum payout and limited by the two-year maturity.

Internal Funding Rate and Valuation Methodology

The Bank of Nova Scotia's pricing for these notes incorporates its internal funding rate—the rate at which the bank would borrow funds through issuance of similar market-linked securities. The pricing supplement indicates this internal funding rate is typically lower than the conventional fixed-rate debt rates the bank would pay on traditional debt issuances. The economic terms, including the 300% participation rate and the maximum payment cap, were calibrated based on this internal funding rate plus the underwriting discount and the economic terms of related hedging instruments the bank may have arranged.

The pricing supplement discloses that this valuation methodology using the bank's internal funding rate results in economic terms that are less favorable to investors than they would be if the pricing were based on the bank's conventional debt borrowing rates. The bank's use of its lower internal funding rate effectively reduces the value proposition of the notes to purchasers. Additionally, the notes do not provide returns based on the bank's conventional debt credit spreads, which further distinguishes these structured products from traditional fixed-income securities.

Loss Scenarios and Downside Risk Profile

Investors in these notes face complete loss of principal if the S&P 500 Index declines by 100% from its initial level of 7,533.77. More practically, any decline in the index results in proportional losses to investors with no downside protection, buffer, or collar against negative performance. The pricing supplement states plainly that investors "may lose up to [their] entire principal amount" if the reference asset performance turns negative, and that losses equal 1% for every 1% negative index return below the initial level.

The disclosure emphasizes that investment in these notes involves "certain risks" and directs investors to review detailed risk factors across multiple sections of the offering documents, including pages P-15 and beyond for additional risks specific to these structured products. The lack of any downside cushion or minimum return (other than zero in the case of flat index performance) means these notes appeal primarily to investors with bullish outlooks on the S&P 500 Index over the two-year holding period.

Distribution Channel and Affiliate Conflicts

Scotia Capital (USA) Inc., an affiliate of The Bank of Nova Scotia, agreed to purchase the notes from the issuing bank for distribution through other registered broker-dealers. The pricing supplement discloses that Scotia Capital and its affiliates or agents may engage in market-making transactions in the notes after their initial sale and use the pricing supplement in such secondary market activity. Unless the confirming broker-dealer informs the buyer otherwise, transactions in these notes should be presumed to be market-making rather than principal purchases.

The disclosure contemplates that the Bank of Nova Scotia may issue additional tranches of similar notes at different times with original issue prices, commissions, and net proceeds differing from those stated for this initial offering. The return performance on any such additional notes will depend partly on the original issue price paid by investors in those later tranches, potentially creating differences in economic outcomes for investors who purchase at different times.

Regulatory Status and Investor Protections

The pricing supplement contains explicit notice that neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes or evaluated the accuracy of the offering documentation. The notes will not be listed on any U.S. securities exchange or automated quotation system, limiting transparency and standardized pricing mechanisms available to investors. The documents do not address FINRA rules or other regulatory requirements that may apply to secondary market trading of these instruments.

Investors should note that the notes do not qualify for insurance protection under the Canada Deposit Insurance Corporation Act or the FDIC, despite being issued by a regulated bank. This absence of deposit insurance means investors bear full credit and market risk with no government backstop. The pricing supplement directs investors to review extensive risk factor disclosures in the accompanying prospectus and product supplement for detailed treatment of investment risks.