Bank of Nova Scotia Launches $1.438 Million Autocallable Notes Linked to Amazon and Alphabet Stock Performance

Structure and Automatic Call Mechanics of the Notes

The Bank of Nova Scotia's notes incorporate an automatic call feature triggered when both Amazon and Alphabet stocks reach specified performance thresholds on designated observation dates. Under the terms disclosed in the offering, if the closing value of each reference asset equals or exceeds its initial value on any call observation date, the notes will be automatically redeemed. Upon automatic call, investors receive a cash payment per note equivalent to the principal amount plus any contingent coupon otherwise payable on the corresponding payment date, along with any accrued unpaid contingent coupons that have not yet been distributed. This early redemption mechanism is intended to cap the investor's upside participation while providing periodic redemption opportunities throughout the note's approximate three-year term.

The automatic call structure means that successful performance of both underlying stocks—relative to their initial values established on the pricing date—results in investor redemption rather than continued exposure to the securities. Once notes are called, the Bank ceases all further payments, and investors no longer participate in any additional gains from the reference assets. This contrasts with traditional equity investments, where sustained price appreciation continues to benefit shareholders indefinitely. The Bank disclosed that call observation dates are specified within the pricing supplement, though the exact schedule was not detailed in the announcement itself.

Contingent Coupon Payments and Memory Coupon Feature

The notes incorporate a contingent coupon mechanism whereby investors receive periodic cash payments only if both reference assets maintain values equal to or greater than specified contingent coupon barrier values on designated observation dates. The filing indicates that if both assets meet the barrier requirement, the notes will pay a contingent coupon plus any unpaid contingent coupons that have accrued from previous observation dates but remained unpaid. This "memory coupon" feature allows investors to recover missed coupon payments from earlier periods when the barrier was not satisfied, provided a subsequent observation date triggers a coupon payment event.

If either reference asset closes below its contingent coupon barrier value on any observation date prior to the final valuation date, the corresponding contingent coupon becomes classified as unpaid and carries forward until the next contingent coupon payment date on which the barrier condition is satisfied. The Bank disclosed that contingent coupons are not guaranteed, meaning investors face the risk of receiving no coupon payments throughout the note's term if the barrier condition is not met on any relevant observation date. The exact coupon rate and barrier level were not specified in the announcement excerpt provided, though the filing references these details under the "Summary" section of the complete pricing supplement.

Maturity Payment Terms and Loss Scenarios

If the notes have not been called prior to maturity, the payment at maturity is determined exclusively by the performance of the least performing reference asset—meaning the asset with the lowest percentage change from its initial value to its final value. The Bank disclosed that if the least performing reference asset's final value equals or exceeds its barrier value at maturity, investors receive their principal amount plus any contingent coupon owed on the final valuation date and any accrued unpaid contingent coupons. This structure ensures that investors recover their principal only if the worst-performing underlying stock does not decline below a specified threshold.

Conversely, if the least performing reference asset closes below its barrier value at maturity and the notes have not been called, investors suffer a direct loss equal to the depreciation of that asset from its initial value. The Bank explicitly disclosed that investors "may lose up to 100% of the Principal Amount" in this scenario, meaning total capital loss is possible if the least performing stock depreciates severely. This downside risk profile is substantially different from conventional fixed-income securities, where principal is generally protected absent issuer default. The filing emphasizes that the notes do not guarantee interest payments, reinforcing that investors have no assured return beyond principal recovery contingent on barrier conditions.

Credit Risk and Unsecured Status of Bank Obligations

The notes are structured as unsubordinated and unsecured debt obligations of The Bank of Nova Scotia, meaning that all payments—whether contingent coupons, automatic call redemptions, or maturity payments—are subject to the creditworthiness of the Bank. The filing explicitly states that "any payments on the Notes are subject to the credit risk of the Bank," indicating that investors bear direct exposure to the Bank's financial condition alongside the market-linked performance mechanics. Should the Bank experience financial distress or default, investors would have no preferential claim on assets relative to other unsecured creditors, and contingent payments could be delayed or impaired. This credit risk is independent of the underlying stock performance and represents a structural vulnerability not present in direct stock investments.

The Bank further disclosed that the notes do not constitute a direct investment in Amazon or Alphabet stocks and provide no economic interest, claim, or ownership in the reference assets, including voting rights or dividend entitlements. This clarification underscores that investors are extending credit to the Bank in exchange for derivative payoffs linked to equity performance, rather than acquiring ownership positions. The notes are also explicitly stated to be uninsured by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other government agency in Canada, the United States, or other jurisdictions, eliminating deposit insurance protections that might otherwise apply to bank deposits.

Pricing, Initial Valuation, and Underwriting Economics

The notes were offered at an original issue price of 100.00% of principal amount, with underwriting commissions of 1.50% per note reducing the Bank's net proceeds to 98.50% of principal. The Bank's affiliate, Scotia Capital (USA) Inc. (SCUSA), agreed to purchase the notes at par and distribute them to other registered broker-dealers at a discount of $15.00 per note, representing the 1.50% commission structure. Additionally, the Bank disclosed that it will periodically pay third-party dealers a structuring fee of $4.50 per note with respect to the portion of the aggregate principal amount sold through such channels. These costs are embedded in the economics of the offering and effectively reduce investor returns compared to a hypothetical scenario with lower distribution expenses.

The Bank disclosed that the initial estimated value of the notes at the time terms were set on the pricing date was $963.89 per $1,000 principal amount, which is materially lower than the 100.00% original issue price paid by investors. This valuation gap reflects the Bank's internal funding rate, underwriting commissions, and costs associated with hedging the Bank's obligations under the notes. The filing indicates that the Bank's internal funding rate is typically lower than rates the Bank would pay for conventional fixed-rate debt, thereby reducing the economic terms offered to note investors. The Bank further disclosed that it may elect to effectively reimburse investors a portion of estimated hedging and structuring costs over an initial period expected to be approximately three months, which could cause secondary market prices to exceed the estimated value temporarily.

Reference Assets and Performance Metrics

The notes are linked to two reference assets: the common stock of Amazon.com Inc. and the Class C capital stock of Alphabet Inc. The valuation mechanics depend on the least performing reference asset—the stock experiencing the lowest percentage change from its initial value to its final value—ensuring that investors' returns are determined by whichever underlying has the weakest performance. This approach means that strong performance from one stock cannot offset meaningful declines in the other, creating asymmetric risk exposure compared to traditional baskets or indices that typically utilize averaging or weighting mechanisms. The initial values for each reference asset were established on the pricing date and serve as the baseline for calculating percentage changes on call observation dates, contingent coupon observation dates, and the final valuation date.

The filing does not specify the exact barrier levels, coupon rates, observation dates, or initial values assigned to each reference asset in the announcement excerpt provided. However, these critical parameters are disclosed in the complete pricing supplement and product supplement accompanying the offering. Investors would need to review those comprehensive documents to understand the precise performance thresholds required to trigger automatic calls, earn contingent coupons, and avoid capital loss at maturity. The use of two separate technology stocks with distinct business models and volatility profiles introduces correlation and concentration risks distinct from single-reference-asset products.

Secondary Market, Liquidity, and Transferability Constraints

The Bank disclosed that the notes will not be listed on any U.S. securities exchange or automated quotation system, restricting the availability of transparent, continuous pricing and creating potential liquidity challenges for investors seeking to exit positions prior to maturity. The filing indicates that SCUSA, the Bank's affiliate, may use the pricing supplement in market-making transactions after the initial sale, suggesting secondary market availability is contingent on the affiliate's discretionary willingness to provide bids and offers. Without an organized exchange listing or mandatory market-making obligation, investors face uncertainty regarding the ease and pricing at which they can liquidate positions before the maturity date or early call date.

The Bank emphasizes in the filing that the actual value of the notes at any time "will reflect many factors and cannot be predicted with accuracy," acknowledging the inherent difficulty in determining fair secondary market prices for complex derivative products. The absence of a standardized trading platform means investors must rely on SCUSA or other dealers for pricing and execution, introducing potential bid-ask spreads and dealer discretion that may adversely affect execution quality. This liquidity constraint is particularly significant for investors who may wish to exit if market conditions deteriorate or if the underlying stocks experience unfavorable moves that reduce the probability of barrier conditions being satisfied.

Term, Maturity Date, and Settlement Details

The notes have an approximate three-year term, with a maturity date of July 20, 2029, unless automatically called prior to that date on an earlier call observation date. The pricing supplement was dated July 17, 2026, designated as the trade date on which the Bank set the terms and conditions of the notes. Settlement of the notes was scheduled for July 22, 2026, providing a standard three-business-day settlement window typical for debt securities. The three-year duration provides defined time horizons for both contingent coupon observation dates and the final valuation date, during which the Bank and note investors remain obligated to the terms of the instruments.

The minimum investment in the notes is $1,000, with additional purchases required in integral multiples of $1,000, establishing an accessible investment threshold for institutional and qualified retail investors. The notes are identified by CUSIP 063941BZ0 and ISIN US063941BZ08, enabling identification and settlement through standard clearance and depository systems. The Bank disclosed that all payments on the notes will be made in cash rather than through physical delivery of securities or other mechanisms, simplifying settlement logistics and reducing operational complexity for both the Bank and investors.

Risks Related to Valuation, Estimation Methodology, and Hedging Economics

The Bank disclosed that the initial estimated value of $963.89 per $1,000 principal amount was determined using the Bank's internal pricing models, which incorporate the Bank's internal funding rate on the trade date and assumptions about various market parameters. This valuation approach is not based on third-party models, market consensus estimates, or comparable pricing from other institutions, introducing potential bias toward valuations favorable to the issuer. The filing further states that the Original Issue Price exceeding the estimated value reflects underwriting commissions, selling and structuring costs, and economic terms of related hedging arrangements, all of which reduce the effective return to investors relative to a scenario with lower distribution and hedging expenses.

The Bank emphasized that its internal funding rate is typically lower than the rate it would pay when issuing conventional fixed-rate debt securities, a structural advantage to the Bank that comes at the expense of note investors receiving lower economic terms than they might in traditional debt instruments. The filing warns that "the Bank's use of its internal funding rate reduces the economic terms of the Notes to you," providing explicit acknowledgment that this methodological choice disadvantages investors. Additionally, the Bank retains discretion regarding whether and when to reimburse investors for a portion of hedging and structuring costs, creating uncertainty about secondary market pricing dynamics and potential investor timing considerations for entry or exit decisions.

Regulatory Status, Suitability Considerations, and Investor Risk Acknowledgment

The Bank disclosed that neither the 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, prospectus supplement, or prospectus. This regulatory statement is standard for securities offerings but underscores that regulatory authorities have not independently verified the disclosures or assessed whether the risk-return profile is appropriate for any particular investor category. The Bank further notes that misrepresenting SEC approval constitutes a criminal offense, establishing the serious legal consequences associated with misleading marketing of these instruments.

The filing explicitly directs investors to review risk sections beginning on multiple pages of the accompanying documents, including "Additional Risks" on page P-11, "Additional Risk Factors Specific to the Notes" beginning on page PS-6 of the product supplement, "Risk Factors" on page S-2 of the prospectus supplement and page 8 of the prospectus. This comprehensive risk disclosure framework reflects the complexity and multiple risk dimensions inherent in structured notes. The Bank emphasizes that investment in the notes involves certain risks and that investors should conduct thorough due diligence before committing capital. The complete prospectus materials contain extensive discussion of market risk, credit risk, liquidity risk, and tax considerations that are not fully summarized in the pricing supplement announcement itself.