Bank of Nova Scotia Issues Russell 2000-Linked Auto-Callable Notes With Leveraged Upside and Buffered Downside Through 2029

Structure and Automatic Call Mechanism for Index-Linked Notes

The Bank of Nova Scotia's new security offering employs a multi-stage payment structure designed to provide enhanced returns under favorable market conditions while limiting upside potential through an automatic call feature. If the Russell 2000 Index closes at or above its starting level on the call date occurring approximately one year after issuance, the securities will automatically be called and investors will receive their full face amount plus a call premium of at least 10.75%, translating to at least $107.50 per $1,000 face amount. This automatic call mechanism means investors' returns are capped at the call premium amount if market conditions trigger the call, preventing them from capturing any additional appreciation in the underlying index during the remainder of the three-year term.

The call settlement date occurs three business days following the call date. Should automatic call occur, investors' securities will cease to be outstanding on the call settlement date, and they will have no further rights or claims under the securities beyond that point. The disclosure emphasizes that investors will not receive proactive notice from the bank if their securities are automatically called, placing the onus on investors to monitor the index performance on and after the scheduled call date. This structural feature represents a significant opportunity cost if the index performs strongly after the call is triggered, as investors forfeit the ability to participate in leveraged upside gains that would otherwise accrue under the non-called scenario.

Upside Participation and Maturity Payment Framework

If the securities are not automatically called at the one-year mark, investors receive a maturity payment amount determined by the Russell 2000 Index's performance through July 31, 2029. Should the index's ending level exceed the starting level, investors receive their $1,000 face amount plus an additional return equal to 125% of the percentage increase in the index. This 125% upside participation rate provides leveraged exposure to index gains, meaning a 10% appreciation in the index would yield a 12.5% gain on top of the face amount, or $125 additional per $1,000 security. This feature addresses the capped returns created by the automatic call, offering enhanced participation if markets develop unfavorably for call triggers.

The maturity payment structure also incorporates a buffered downside component. If the ending index level falls below the starting level but remains within a 10% buffer zone, investors receive their full $1,000 face amount with no loss. This protection mechanism safeguards investors from modest declines in the underlying index. However, if the index declines by more than the 10% buffer amount, investors experience dollar-for-dollar downside exposure to losses exceeding the buffer, potentially resulting in losses up to 90% of the face amount. The final calculation day is scheduled for July 31, 2029, with the stated maturity date of August 3, 2029, subject to postponement under market disruption provisions outlined in the accompanying materials.

Risk Profile and Principal-at-Risk Nature of Securities

The Bank of Nova Scotia's disclosure clearly establishes these securities as principal-at-risk instruments, fundamentally distinct from conventional unsecured debt obligations. Unlike traditional senior notes, these securities do not pay periodic interest, do not guarantee repayment of a fixed principal amount at maturity, and are subject to mandatory redemption under the automatic call provision. Investors may lose up to 90% of their face amount if the Russell 2000 Index experiences significant depreciation beyond the 10% buffer threshold. The securities are described as having "complex features" and involve risks not typically associated with conventional debt securities, necessitating careful review of the accompanying product supplement and risk factors sections before investment.

All payments on these securities remain subject to the credit risk of The Bank of Nova Scotia itself. The bank notes that the securities are not insured by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other governmental agency in Canada, the United States, or any other jurisdiction. This unsecured senior status means investors bear both market risk (through index linkage) and issuer credit risk simultaneously. Additionally, the securities have no exchange listing and are designed to be held to maturity, limiting secondary market liquidity and exit opportunities prior to August 3, 2029.

Estimated Valuation and Secondary Market Pricing Considerations

The Bank of Nova Scotia estimated the secondary market value of these securities would range between $932.76 (93.276%) and $962.76 (96.276%) per security if priced on the filing date. This valuation methodology incorporates dealer spread and projected profit from hedging activities, which the bank acknowledges are likely to adversely affect secondary market prices. The original offering price of $1,000 per security includes an agent discount structure whereby Scotia Capital (USA) Inc. or its affiliates initially purchase the securities from the bank and distribute them to registered broker dealers, including Wells Fargo Securities. The disclosure explicitly notes that exclusion of hedging profits from the proceeds calculation means the net proceeds to the bank of $974.25 per security do not account for potential dealer hedging gains.

The distribution structure involves multiple layers of compensation. Wells Fargo Securities receives a discount of up to $25.75 per security (2.575%), which it may share with affiliated entities and selected dealers through selling concessions of up to $20.00 per security (2.00%) and distribution expense fees of $0.75 per security (0.075%). Selected securities dealers may also receive marketing fees of up to $3.00 per security. These distribution arrangements create embedded costs that investors should understand when evaluating expected returns, particularly since the estimated secondary market value already reflects anticipated dealer spreads and hedging profit projections.

Index-Specific Characteristics and No Income Stream

The securities are explicitly linked to the Russell 2000 Index, a broad market measure of small-cap equity performance in the United States. Unlike investments in the Russell 2000 itself or in equity index funds tracking this benchmark, the structured notes provide no dividend income or periodic distributions derived from securities included in the index. Investors receive only the final maturity payment (or call premium if automatically called) based on index price appreciation or depreciation, with no interim cash flows. This feature concentrates investment returns entirely on capital appreciation or depreciation of the underlying index during the three-year holding period.

The starting level of the index is used to calculate both the automatic call trigger at the one-year mark and the maturity payment amount at three years. The disclosed terms indicate that the call date closing level, final calculation day closing level, and resulting index return percentage directly determine investor outcomes. Should the index experience significant volatility during the holding period, the automatic call at the one-year anniversary may trigger despite broader market uncertainty, potentially locking investors into the 10.75% call premium while missing subsequent recovery or growth in small-cap equity markets through 2029.

Preliminary Pricing and Registration Framework

The Bank of Nova Scotia filed this preliminary pricing supplement on July 20, 2026, pursuant to Rule 424(b)(2) under the Securities Act of 1933, referencing Registration Statement No. 333-282565. The document relates to the bank's Senior Note Program, Series A, and is subject to completion on the actual pricing date, initially scheduled for July 31, 2026. The accompanying materials include a product supplement (No. WF-1 dated November 8, 2024), underlier supplement (November 8, 2024), prospectus supplement (November 8, 2024), and base prospectus (November 8, 2024). The issue date is scheduled for August 5, 2026, creating a short window between pricing and settlement for investors to finalize their participation decisions.

The preliminary nature of this supplement means key final terms, including the precise call premium percentage within the "at least 10.75%" range, remain subject to completion prior to final pricing. Investors are cautioned that the information in the preliminary pricing supplement is incomplete and subject to change. The Securities and Exchange Commission and state securities commissions have neither approved nor disapproved the securities, and no regulatory body has passed upon the accuracy or adequacy of the disclosure materials. The filing represents the bank's formal registration and offering document for these complex structured products, requiring careful analysis alongside the comprehensive risk factors outlined in the accompanying product supplement and prospectus materials.

Distribution Channels and Affiliate Involvement

Scotia Capital (USA) Inc., identified as an affiliate of The Bank of Nova Scotia, serves as the primary distributor of these securities, purchasing them from the bank and reselling them through a network of registered broker dealers. Wells Fargo Securities is named as a major distribution partner. The disclosure indicates that Scotia Capital or its affiliates may engage in market-making transactions in the securities following their initial sale, potentially using the pricing supplement in secondary market trading activities. This affiliate distribution arrangement creates potential conflicts of interest, as Scotia Capital benefits from both the initial distribution markup and subsequent trading spreads in the secondary market.

Investors purchasing securities through Scotia Capital directly or through Wells Fargo advisors, including Wells Fargo Advisors (the retail brokerage business of Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network), should understand the compensation structure embedded in their purchase price. The initial offering price of $1,000 per security incorporates the $25.75 agent discount, meaning the bank receives net proceeds of $974.25 per security before considering hedging profit exclusions. Wells Fargo Advisors may receive additional distribution expense fees alongside the standard selling concessions, and investors should request complete disclosure of all compensation received by their financial advisor or institution from this offering.

Material Risks and Complexity Warnings

The Bank of Nova Scotia explicitly warns that these securities possess complex features and involve risks not associated with conventional debt securities. The disclosure directs investors to "Selected Risk Considerations" beginning on page P-9 of the pricing supplement and comprehensive "Risk Factors" sections in the accompanying product supplement, prospectus supplement, and base prospectus for detailed analysis. The structured nature of the auto-callable mechanism, leveraged upside participation, and buffered downside protection creates non-linear return profiles that differ fundamentally from straight equity or debt investments. Investors must understand the automatic call mechanics to avoid being unexpectedly limited to the 10.75% return while missing potentially significant index appreciation.

The potential for loss up to 90% of face amount represents substantial principal-at-risk exposure, particularly relevant given the securities' three-year maturity and the uncertainty of Russell 2000 Index performance over that period. The lack of periodic income payments means investors cannot recoup losses through interim dividend-like distributions if market conditions deteriorate. Additionally, the absence of exchange listing and the design intention for buy-and-hold-to-maturity strategy limits exit flexibility if investors' circumstances change or market conditions shift during the three-year holding period. The credit risk of The Bank of Nova Scotia adds another layer of potential loss if the bank's financial condition deteriorates, though the senior unsecured nature of the notes provides some priority over equity investors.

Comparison to Direct Index Investment and Alternative Structures

Investors considering this offering should understand how the structured note's features compare to direct investment in Russell 2000 Index funds or exchange-traded funds. A direct index investment would provide full participation in index appreciation without leverage limitations, dividend income from constituent securities, and continuous liquidity through exchange trading. The structured note's 125% upside participation offers enhanced returns on positive index moves, but the automatic call cap eliminates this benefit if the index rises above its starting level within one year. The 10% buffer protects against modest declines but provides no protection beyond that threshold, and direct index investors would experience full downside exposure proportional to their investment.

The estimated secondary market value of $932.76 to $962.76 per security for a $1,000 face amount security reflects significant embedded costs and hedging profit expectations built into the original offering price. Investors should calculate the effective cost basis and understand whether anticipated index returns justify paying for the optionality features embedded in the structured product versus the lower expenses associated with passive index tracking vehicles. The three-year maturity and lack of liquidity also distinguish this offering from more flexible index investment alternatives that allow investors to reallocate capital or reduce exposure based on changing market circumstances or personal financial needs.