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The Bank of Nova Scotia has announced preliminary terms for a new structured note product offering contingent quarterly income to investors willing to accept principal risk. The Contingent Income Auto-Callable Securities, maturing August 3, 2028, base all payments on the worst-performing of three major indices: Nasdaq-100, Russell 2000, and S&P 500. This offering targets investors seeking higher-than-market returns in exchange for exposure to downside risk across multiple equity benchmarks.
Key Points
- NYSE: BNS
- Bank of Nova Scotia filed a preliminary pricing supplement dated July 23, 2026, for Contingent Income Auto-Callable Securities maturing August 3, 2028
- Securities provide a quarterly coupon of $25.40 per $1,000 principal (10.16% annualized) if all three underlying indices stay at or above 70% of their initial values on determination dates
- Investors risk total principal loss if any underlying index falls below 70% of its initial value at maturity
Structure and Contingent Coupon Details
The Bank of Nova Scotia's structured notes offer quarterly coupon payments contingent on simultaneous performance of all three underlying equity indices. Investors receive a quarterly coupon of $25.40 per security (10.16% annualized) on determination dates—November 2, 2026; February 1, 2027; April 30, 2027; August 2, 2027; November 1, 2027; January 31, 2028; May 1, 2028; and July 31, 2028—provided all indices close at or above 70% of their initial values. If any index closes below 70% on a determination date, no coupon is paid for that period.
This all-or-nothing coupon structure creates significant asymmetry: the worst-performing index dictates coupon payments, so weakness in any single benchmark can eliminate quarterly income regardless of the others’ performance. The filing highlights that investors must accept the risk of receiving no coupons during the entire two-year term. This contrasts with traditional fixed-income securities where coupons are generally unconditional.
Automatic Redemption and Call Thresholds
The notes include an automatic early redemption feature triggered if all three indices simultaneously reach or exceed 100% of their initial values on any determination date before maturity. If triggered, the securities will be redeemed on the next coupon payment date for $1,000 principal plus the contingent coupon for that period.
This call feature caps upside participation, preventing investors from benefiting beyond the call threshold or receiving payments after early redemption. It reflects the issuer’s intent to limit exposure to sustained index appreciation during the notes’ life.
Principal Risk and Downside Exposure
The Bank of Nova Scotia clearly states these securities do not guarantee principal repayment or protect against losses. If any index closes below 70% of its initial value on the final determination date (July 31, 2028), investors receive principal adjusted by the worst-performing index’s return, potentially resulting in significant losses or total principal loss.
The worst-performing index methodology concentrates risk: a severe decline in any index determines the final payout regardless of others’ gains. For example, a 50% drop in the worst-performing index results in approximately $500 per $1,000 invested at maturity, a 50% loss. Investors bear full downside exposure below the 70% threshold, making these notes unsuitable for low-risk or short-term investors.
Referenced Indices and Initial Values
The securities reference Nasdaq-100 (NDX), Russell 2000 (RTY), and S&P 500 (SPX) indices. Initial values will be set on July 31, 2026, establishing baselines for performance comparisons. Specific initial values will be included in the final pricing supplement but are not disclosed in this preliminary filing.
This selection provides broad equity exposure: Nasdaq-100 focuses on large-cap tech and growth stocks, S&P 500 covers large-cap equities across sectors, and Russell 2000 represents small-cap stocks. The worst-performance trigger means weakness in any segment can eliminate coupons or reduce principal recovery, concentrating downside risk despite diversified reference points.
Pricing and Investment Terms
The securities have a stated principal of $1,000 per note, issued at $1,000. The aggregate principal amount will be specified in final documents. Minimum investment is $1,000 (one security). Pricing date is July 31, 2026, with an original issue date of August 5, 2026, following a T+3 settlement cycle.
Purchasers intending to trade before delivery may need alternative settlement arrangements to avoid failed settlements, as the initial T+3 differs from the standard T+1 secondary market settlement under SEC Rule 15c6-1. This is critical for investors planning active trading or seeking liquidity prior to delivery.
Maturity and Coupon Payment Schedule
The securities mature August 3, 2028, subject to postponement for market disruptions. There are eight determination dates over two years, each followed by contingent coupon payment dates a few business days later. The final determination date is July 31, 2028, one week before maturity, when the final payoff is calculated.
Quarterly coupon payments begin November 5, 2026, continuing through maturity. If all indices remain above 70% thresholds on each date, investors receive eight payments of $25.40, totaling $203.20 over two years. However, any index falling below threshold on a determination date results in zero coupons for that period.
Credit Risk and Issuer Obligations
All payments depend on the creditworthiness of The Bank of Nova Scotia. The filing warns that if BNS defaults, investors may lose all amounts owed. These senior unsecured notes under BNS’s Senior Note Program, Series A, carry no secured claims or collateral.
Investors have no security interest in underlying assets; claims rely solely on BNS’s ability to meet obligations. Credit deterioration would likely reduce secondary market value regardless of index performance, compounding market risk inherent in the worst-performing index structure.
Regulatory Filings and Framework
The preliminary pricing supplement was filed under Rule 424(b)(2), referencing Registration Statement No. 333-282565. The offering cites a base prospectus dated November 8, 2024, with supplements dated the same day. This preliminary document is subject to completion; sales cannot occur until the final pricing supplement and offering documents are delivered.
This structured note is part of BNS’s broader program issuing notes linked to various reference assets and indices. The regulatory framework mandates delivery of final terms—including initial index values, call and coupon thresholds, and aggregate principal—before purchase. Investors should await the final supplement before investing, as key terms remain subject to change.
Investor Suitability and Risk Considerations
The Bank of Nova Scotia states these securities suit investors willing to risk entire principal based on the worst-performing index and seeking potentially above-market interest in exchange for possible zero coupons over two years. Investors will not benefit from index gains beyond contingent coupons, even if one or two indices perform well.
The worst-performance and threshold-based coupon mechanics can lead to no income and significant principal losses simultaneously. For instance, a 30% decline in all indices results in no coupons and about 30% principal loss at maturity. These notes are not appropriate for investors seeking principal preservation, steady income, or broad market participation, but for sophisticated investors aligned with the contingent income risk-return profile.
