Bank of Nova Scotia Issues $2.3 Million Dual Directional Capped Buffered Notes Linked to S&P 500

Structured Note Terms and Return Profile

The Bank of Nova Scotia's new Notes offer a dual directional return structure designed to appeal to investors seeking both upside participation and downside protection in equity markets. The disclosure states that if the Final Value of the S&P 500 Index equals or exceeds the Initial Value as of the Trade Date, investors receive returns equal to the positive performance of the Reference Asset, subject to a maximum upside return of 20.81%. This capped return mechanism means investors participate in market gains but with a predetermined ceiling, limiting exposure to outsized equity rallies.

The downside protection component of the Notes incorporates a buffered structure. The filing indicates that if the Final Value of the S&P 500 falls below the Initial Value but remains at or above 80% of the Initial Value, investors receive returns equal to the absolute value of any decrease in the Reference Asset level. This means investors experience no loss if the index declines by up to 20%. However, the disclosure clarifies that losses accelerate significantly beyond the buffer threshold, with investors losing 1.25% of the Principal Amount for each 1% the index declines beyond the 20% buffer level, potentially resulting in a total loss of 100% of the Principal Amount if the index falls sufficiently.

Pricing Details and Distribution Structure

The Bank established an Original Issue Price of 100% of the Principal Amount, generating total proceeds of $2,326,000 to investors. The disclosure shows that underwriting commissions totaled 1.50% or $34,890, with net proceeds to The Bank of Nova Scotia reaching 98.50% or $2,291,110. Scotia Capital (USA) Inc., identified as the Bank's affiliate, agreed to purchase the Notes at the Original Issue Price and subsequently sell them to J.P. Morgan Securities LLC. Both Scotia Capital (USA) Inc. and J.P. Morgan Securities LLC jointly act as placement agents for the distribution.

The filing notes that the placement agents received a fee of 1.50% per Note, though the disclosure states the agents agreed to forgo fees for sales to fiduciary accounts. The initial estimated value of the Notes on the Trade Date was determined at $982.29 per $1,000 Principal Amount, representing a discount of approximately 1.77% to the Original Issue Price. The Bank explained that this valuation reflects internal pricing models incorporating the Bank's internal funding rate, underwriting discounts, and costs associated with selling and structuring the Notes, including hedging arrangements. The difference between the Original Issue Price and estimated value represents the economic cost embedded in the product.

Investment Terms and Eligibility Requirements

The Notes established by the Bank require a minimum investment of $10,000 with additional investments in integral multiples of $1,000 in excess thereof. The disclosure identifies the CUSIP number as 063941CL0 and the ISIN as US063941CL03 for identification purposes in secondary market transactions. The Trade Date was July 17, 2026, with settlement scheduled for July 22, 2026, and the Notes will mature approximately 2 years following issuance on July 20, 2028.

The filing specifies that all payments on the Notes will be made in cash exclusively and will be paid only at maturity. The Notes do not bear interest or pay any coupons prior to maturity, meaning investors receive no interim cash distributions during the holding period. The Bank disclosed that the Notes are unsubordinated and unsecured debt securities, making all payments subject to the credit risk of the Bank itself. Additionally, the disclosure explicitly states that the Notes will not be listed on any U.S. securities exchange or automated quotation system, limiting liquidity to over-the-counter transactions arranged through affiliated market makers.

Credit Risk and Issuer Considerations

The pricing supplement emphasizes that the Notes represent unsubordinated and unsecured obligations of The Bank of Nova Scotia, with all payments contingent upon the Bank's creditworthiness. The disclosure warns that investors are exposed to the credit risk of the issuer alongside the market risk of the S&P 500 Index. Unlike bank deposits, the filing explicitly states that the Notes are not insured by the Canada Deposit Insurance Corporation under the Canada Deposit Insurance Corporation Act, nor are they covered by the U.S. Federal Deposit Insurance Corporation or any other government agency in Canada, the United States, or any other jurisdiction. This distinction means investors bear full credit risk with no government safety net.

The Bank's use of its internal funding rate in pricing the Notes creates an additional economic consideration for investors. The disclosure notes that the Bank's internal funding rate is typically lower than the rate the Bank would pay when issuing conventional fixed-rate debt securities. By using this internal rate as the basis for the Notes' economic terms, the Bank effectively reduces the economic value returned to investors compared to using its conventional borrowing rates. This pricing methodology is disclosed as a factor affecting the difference between the Original Issue Price and the initial estimated value.

Secondary Market Liquidity and Valuation Mechanics

The Bank disclosed that Scotia Capital (USA) Inc. may use the pricing supplement in market-making transactions in the Notes after their initial sale. The filing states that unless the Bank, Scotia Capital, or another affiliate explicitly informs investors otherwise in their confirmation of sale, the pricing supplement should be understood as being used in a market-making transaction. The disclosure indicates that the secondary market prices at which Scotia Capital may buy or sell the Notes, if the firm chooses to make such a market, will be based on Scotia Capital's internal pricing models and are not obligated to be offered.

Notably, the Bank disclosed a temporary reimbursement mechanism whereby it may elect to effectively reimburse investors a portion of the estimated cost of hedging obligations and other costs for a period expected to be approximately 3 months after the Original Issue Date. The filing states that during this reimbursement period, the price at which Scotia Capital may initially buy or sell the Notes in the secondary market may exceed the estimated value on the Trade Date. However, the disclosure cautions that this reimbursement allocation may not be distributed ratably throughout the reimbursement period and the Bank may discontinue such reimbursement at any time or revise the reimbursement duration based on market condition changes that cannot be predicted.

Reference Asset Structure and Investor Rights

The Notes are structured as derivative products based solely on the price return of the S&P 500 Index. The filing emphasizes that the Notes do not constitute a direct investment in the Reference Asset or any of the constituent stocks comprising the index. The disclosure explicitly states that by acquiring the Notes, investors will not have any direct economic interest, claim, entitlement, or legal or beneficial ownership of any S&P 500 constituent stocks. Critically, investors retain no rights as holders of constituent stocks, including voting rights or entitlements to receive dividends or other distributions.

The Bank characterized the Notes as unsubordinated and unsecured debt obligations, distinct from equity interests in the underlying index components. The structure means that while investors gain price performance exposure to the S&P 500, they receive none of the income streams or governance rights associated with actual index constituents. This distinction is material because it defines the risk-return profile as purely derivative-based rather than ownership-based, positioning investors as creditors of the Bank with exposure only to index price appreciation or depreciation.

Risk Disclosures and Regulatory Status

The pricing supplement includes extensive risk disclosures spanning multiple sections, directing investors to review "Additional Risks" beginning on page P-10 of the pricing supplement, "Additional Risk Factors Specific to the Notes" beginning on page PS-6 of the accompanying product supplement, and "Risk Factors" beginning on page S-2 of the accompanying prospectus supplement and page 8 of the accompanying prospectus. The Bank emphasized that investment in the Notes involves certain risks that investors must carefully evaluate before committing capital.

The filing explicitly states that neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Notes or passed upon the accuracy or adequacy of the pricing supplement, product supplement, underlier supplement, prospectus supplement, or prospectus. The disclosure includes a statement that any representation to the contrary constitutes a criminal offense. The regulatory status clarifies that investors cannot rely on government approval as validation of the offering's merit or safety.

Estimated Value and Pricing Transparency

The Bank disclosed that the initial estimated value of the Notes at the time the terms were set on the Trade Date was $982.29 per $1,000 Principal Amount, which is less than the Original Issue Price of 100% or $1,000 per note. This $17.71 per note discount reflects the embedded costs of the structured product, including hedging costs, selling costs, and the Bank's internal funding assumptions. The filing cautions that the actual value of the Notes at any time will reflect many factors and cannot be predicted with accuracy, acknowledging the complexity inherent in valuing derivative products.

The disclosure notes that for certain fiduciary accounts, the Original Issue Price may have been as low as $985.00, indicating some differentiation in pricing among investor classes. This variation suggests that large or institutional investors purchasing through fiduciary arrangements may have received more favorable pricing than standard retail investors. The Bank explained that its internal pricing models incorporate factors such as the Bank's internal funding rate on the Trade Date and assumptions about market parameters, but declined to provide the detailed mathematical methodology underlying these valuations.

Placement Agent Relationships and Distribution Channel

The disclosure reveals that Scotia Capital (USA) Inc., an affiliate of The Bank of Nova Scotia, serves as the primary distribution partner for these Notes. Scotia Capital agreed to purchase the Notes at the Original Issue Price and immediately resell them through J.P. Morgan Securities LLC, which acts alongside Scotia Capital as a co-placement agent. This arrangement creates a distribution chain where JPMorgan serves as the external distribution force while Scotia Capital retains the option to engage in secondary market making activities following the initial sale.

The filing explicitly addresses conflicts of interest inherent in this structure, noting that Unless the Bank, Scotia Capital, or another affiliate informs investors otherwise in the confirmation of sale, the pricing supplement should be understood as being used in a market-making transaction. The disclosure directs investors to review "Supplemental Plan of Distribution (Conflicts of Interest)" sections in both the pricing supplement and the accompanying product supplement for detailed analysis of how these relationships may affect pricing and market availability. This transparency acknowledges that affiliated market makers may prioritize their own profit optimization over investor interests in secondary market transactions.