Bank of Nova Scotia Issues Autocallable Contingent Coupon Notes Linked to Nasdaq-100 and S&P 500

Structure and Automatic Call Feature of the Autocallable Notes

The Bank of Nova Scotia's newly announced notes incorporate an automatic call mechanism that provides early redemption opportunities for investors. The notes will be automatically called if the Closing Value of each Reference Asset on any Call Observation Date is equal to or greater than its Initial Value. When an automatic call occurs, investors will receive a cash payment per note on the Call Settlement Date equal to the Principal Amount plus the Contingent Coupon otherwise payable on the corresponding Contingent Coupon Payment Date.

This automatic call feature represents a structured approach to managing redemption risk for both the issuer and investors. The mechanism allows the notes to terminate early if both the Nasdaq-100 Index and S&P 500 Index maintain or exceed their initial values on specified observation dates. The filing does not disclose the specific Call Observation Dates, stating only that they are "as specified in this pricing supplement," which indicates these details would be finalized in the definitive pricing supplement.

Contingent Coupon Mechanics and Observation Requirements

The notes feature a contingent coupon structure that provides income to investors under specific market conditions. If the notes have not been automatically called, the Closing Value of each Reference Asset on any Contingent Coupon Observation Date must be equal to or greater than its Contingent Coupon Barrier Value for the notes to pay a Contingent Coupon on the corresponding Contingent Coupon Payment Date. The filing does not disclose the specific coupon rate or the Contingent Coupon Barrier Value levels, as these are to be determined at pricing.

The contingent nature of these coupon payments creates uncertainty for income-focused investors. The filing explicitly states that "The Notes do not guarantee interest and you may not receive any Contingent Coupons on the Notes." This language underscores that coupon payments depend entirely on both Reference Assets meeting their respective barrier requirements on the observation dates, making the income component of these notes speculative rather than guaranteed.

Maturity Payout Structure Tied to Least Performing Index

At maturity, the payout structure of the notes is determined by comparing the performance of both Reference Assets. If the notes have not been automatically called, the Payment at Maturity will be based solely on the performance of the Reference Asset with the lowest percentage change from its Initial Value to its Final Value, designated as the "Least Performing Reference Asset." This approach means that regardless of how well one index performs, the notes' maturity value will be determined by whichever index shows the weakest performance.

The payout at maturity follows two scenarios based on the Least Performing Reference Asset's Final Value. If the Final Value is equal to or greater than its Barrier Value, investors will receive the Principal Amount of the notes on the Maturity Date, in addition to any Contingent Coupon due on that date. However, if the Final Value of the Least Performing Reference Asset is less than its Barrier Value, investors will suffer a loss equal to the depreciation of that Reference Asset, with potential losses up to 100% of the Principal Amount. The filing does not disclose the specific Barrier Value percentages.

Credit Risk and Unsecured Nature of the Obligation

A critical investment consideration for these notes is that all payments are subject to the creditworthiness of The Bank of Nova Scotia. The notes are explicitly described as "unsubordinated and unsecured debt securities," meaning investors have no claim on specific Bank assets and rank equally with other unsecured creditors in the event of financial distress. The filing emphasizes this point repeatedly, stating that "Any payment on your Notes is subject to the creditworthiness of the Bank."

Furthermore, the filing specifies that the notes "are not insured by the Canada Deposit Insurance Corporation (the "CDIC") pursuant to the Canada Deposit Insurance Corporation Act (the "CDIC Act") or the U.S. Federal Deposit Insurance Corporation (the "FDIC") or any other government agency of Canada, the United States or any other jurisdiction." This absence of deposit insurance protection means investors bear full credit risk exposure to the Bank, in addition to the market risk inherent in the structured product design.

Estimated Value Discount and Pricing Economics

The Bank has disclosed that the initial estimated value of the notes at the time the terms are set on the Trade Date is expected to be between $931.71 and $961.71 per $1,000 Principal Amount, which will be less than the Original Issue Price of 100%. This substantial discount reflects the costs embedded in the structured product. The Original Issue Price is 100% of principal, with underwriting commissions of up to 2.00%, meaning the Bank receives at least 98% of the purchase price as proceeds.

The filing explains that the estimated value discount exists because "the Original Issue Price you pay to purchase the Notes will be greater than the initial estimated value of the Notes." The Bank's internal funding rate, underwriting discount, and costs associated with selling and structuring the notes, including the economic terms of related hedging arrangements, all contribute to this pricing gap. The filing notes that "The Bank's internal funding rate is typically lower than the rate the Bank would pay when it issues conventional fixed rate debt securities," indicating the Bank is using favorable internal rates to economically benefit from this structured product issuance.

Temporary Secondary Market Reimbursement Period

The Bank has disclosed that it has made a discretionary election regarding secondary market pricing that may temporarily benefit investors. The price at which Scotia Capital (USA) Inc. (SCUSA), the Bank's affiliate, may initially buy or sell the notes in the secondary market may exceed the Bank's estimated value on the Trade Date for a temporary period expected to be approximately three months after the Original Issue Date. During this period, the Bank may effectively reimburse to investors a portion of the estimated cost of hedging its obligations and other costs that it will no longer expect to incur over the term of the notes.

However, the filing provides important caveats regarding this reimbursement arrangement. The amount of estimated costs that the Bank effectively reimburses to investors may not be allocated ratably throughout the reimbursement period, and the Bank may discontinue such reimbursement at any time in its discretion. The filing does not specify the exact amount of the reimbursement or provide a formula for calculating it, leaving investors with uncertainty about the magnitude and timing of any secondary market pricing benefit.

Distributions and Affiliate Conflicts of Interest

The distribution structure for these notes involves the Bank's affiliate, Scotia Capital (USA) Inc., in a manner that creates potential conflicts of interest. SCUSA will purchase the notes from the Bank at the Principal Amount and, as part of the distribution, will sell the notes to other registered broker-dealers at a discount of up to $20.00 (2.00%) per Principal Amount of the notes, or will offer the notes directly to investors. This structure means SCUSA acts as both a principal buyer from the Bank and a distributor to the market.

The filing discloses that SCUSA may use the final pricing supplement in market-making transactions in the notes after their initial sale. The preliminary pricing supplement notes that "Unless we, SCUSA or another of our affiliates selling such Notes to you informs you otherwise in the confirmation of sale, this pricing supplement is being used in a market-making transaction." This disclosure indicates that secondary market activity in these notes may be facilitated by Bank affiliates, and investors should be aware of this potential conflict when evaluating liquidity and pricing in the secondary market.

Index Selection and Performance Measurement Methodology

The notes are linked to two major U.S. equity indices: the Nasdaq-100 Index and the S&P 500 Index. The filing indicates that payments on the notes are "based on the performance of the Nasdaq-100 Index and the S&P 500 Index (each, a 'Reference Asset')." However, the filing does not disclose the specific Initial Values, observation dates, coupon rates, or barrier levels that will apply to the notes. These critical terms are stated to be determined and specified in the final pricing supplement when the notes actually price on July 31, 2026.

The use of two indices creates a unique performance dynamic where the "Least Performing Reference Asset" determines the maturity payout. This means that if the Nasdaq-100 Index declines 5% while the S&P 500 Index remains flat, the notes' performance will be measured entirely against the Nasdaq-100 Index's 5% decline. The filing notes that the notes do not constitute "a hypothetical direct investment in any of the Reference Assets" and that "By acquiring the Notes, you will not have a direct economic or other interest in, claim or entitlement to, or any legal or beneficial ownership of, any Reference Asset Constituent Stock or any rights as a holder of a Reference Asset Constituent Stock."

Expected Timeline and Settlement Details

The Bank has disclosed specific timing information for the offering and settlement of the notes. The notes are expected to price on July 31, 2026, and are expected to settle on August 5, 2026. The maturity date is August 3, 2029, giving the notes an approximate three-year term if they are not automatically called prior to maturity. The notes have a minimum investment requirement of $1,000 and integral multiples of $1,000 in excess thereof, establishing an accessible entry point for retail investors while maintaining standardized investment increments.

The CUSIP and ISIN numbers for the notes have been assigned: CUSIP 063941DX3 and ISIN US063941DX32. These identifiers enable investors and financial professionals to track and reference the notes in market systems. The filing notes that "The Notes will not be listed on any U.S. securities exchange or automated quotation system," meaning investors interested in secondary market trading would need to access these notes through over-the-counter markets facilitated by broker-dealers.

Investment Risks and Regulatory Disclosures

The Bank's filing contains extensive risk disclosures for potential investors. The filing states that "Investment in the Notes involves certain risks" and directs investors to review "Additional Risks" beginning on specified pages, as well as "Additional Risk Factors Specific to the Notes," "Risk Factors," and other risk-related sections in accompanying documents. The filing explicitly warns that the initial estimated value of the notes will be less than the Original Issue Price investors pay, creating an immediate economic disadvantage.

The regulatory status of the notes is also clearly disclosed. The filing states that "Neither the United States Securities and Exchange Commission (the 'SEC') nor any state securities commission has approved or disapproved of the Notes or passed upon the accuracy or the adequacy of this pricing supplement." This standard regulatory disclosure emphasizes that approval of the notes has not been granted by securities regulators, though the filing was made pursuant to Rule 424(b)(2) and registered under Registration No. 333-282565. The filing also notes that this preliminary pricing supplement is "Subject to Completion. Dated July 21, 2026" and that the Bank "may not sell these Notes until the Pricing Supplement is delivered in final form."