Bank of Nova Scotia Launches $1.764 Billion Autocallable Notes Linked to Amazon and Alphabet Stocks

Autocallable Notes Structure and Underlying Assets

The Bank of Nova Scotia’s newly issued notes are complex derivative instruments whose value depends solely on the performance of two reference stocks: Amazon.com Inc. common stock and Alphabet Inc. Class C capital stock. Payments are determined by the "Least Performing Reference Asset," defined as the asset with the lowest percentage change from initial to final value. This dual linkage exposes investors to downside risk based on the weaker of the two technology stocks, concentrating exposure in a volatile equity sector.

These notes do not grant investors ownership, voting rights, or dividend entitlements in Amazon or Alphabet. The Bank clarifies that purchasing these notes does not convey "any legal or beneficial ownership of, any Reference Asset." Instead, investors hold unsecured debt obligations of the Bank of Nova Scotia, with returns calculated based on closing prices on specified observation dates. All payments will be made in cash without physical delivery of securities or dividend pass-through.

Automatic Call Feature and Early Redemption Terms

A key feature is the automatic call provision, allowing early redemption if both reference assets close at or above their initial values on designated call observation dates. If triggered, investors receive principal plus any contingent coupons payable and accrued unpaid coupons. After an automatic call, no further payments are due, ending the investment.

This feature caps upside potential while leaving downside risk uncapped. If both assets appreciate enough to trigger the call, investors receive principal and accrued coupons but miss out on further gains. If not called early, investors face final evaluation based on the least performing asset. This asymmetry reflects the derivative nature and embedded hedging costs.

Contingent Coupon Payments and Memory Mechanism

The notes include contingent coupons paid only if both assets close at or above barrier levels on coupon observation dates. If conditions are met, coupons are paid along with any previously unpaid coupons, which accumulate via a "memory" feature. If either asset closes below its barrier on an observation date, the coupon for that date is unpaid but carried forward to future payment dates when conditions are met.

This mechanism may result in extended periods without coupon payments while accrued coupons accumulate, deferring income to later dates.

Maturity Payment and Principal Risk Exposure

If not called early, the maturity payment on July 20, 2029, depends on the least performing asset’s final value relative to its barrier. If the asset meets or exceeds the barrier, investors receive full principal plus any remaining coupons. If it falls below, investors incur losses proportional to the asset’s depreciation, potentially losing the entire principal.

The Bank explicitly warns that investors "may lose up to 100% of the Principal Amount" if the weaker stock declines significantly. With exposure to two large-cap tech stocks, market volatility or sector downturns could cause substantial losses. These notes lack principal protection typical of traditional fixed-income securities.

Pricing, Valuation, and Initial Estimated Value

The original issue price is 100% of principal, totaling $1.764 billion. At pricing on July 17, 2026, the initial estimated value was $978.51 per $1,000 principal—approximately 2.15% below issue price. This difference reflects the Bank’s internal pricing models incorporating funding costs, underwriting fees, and hedging expenses.

The Bank notes its internal funding rate is "typically lower than the rate the Bank would pay when it issues conventional fixed rate debt securities," indicating reduced economic value for investors compared to traditional debt. Secondary market prices through Scotia Capital (USA) Inc. may exceed estimated values for about three months post-issuance as some hedging and structuring costs are reimbursed.

Credit Risk and Unsecured Debt Status

The notes are unsecured, unsubordinated debt obligations of The Bank of Nova Scotia, making payments fully dependent on the Bank’s creditworthiness. They are not insured by Canada Deposit Insurance Corporation (CDIC), U.S. Federal Deposit Insurance Corporation (FDIC), or any other government insurance programs.

Investors face both equity market risk linked to Amazon and Alphabet stock performance and counterparty credit risk tied to the Bank. In case of financial distress or default by the Bank, investors could lose principal regardless of stock performance. The filing does not provide credit ratings or comparative borrowing cost data, requiring investors to independently evaluate credit risk.

Distribution and Affiliate Market-Making Conflict of Interest

Scotia Capital (USA) Inc. (SCUSA), an affiliate of the Bank, agreed to purchase the notes at principal amount and distribute them to registered broker-dealers at the same price. Instead of traditional underwriting fees, the Bank pays third-party dealers a $4.50 structuring fee per note on $1.512 billion of the $1.764 billion aggregate principal, totaling approximately $6.804 million over the notes’ life.

SCUSA retains rights to use the pricing supplement for secondary market-making. The Bank discloses this may create conflicts of interest, as SCUSA’s trading activities might not align with note holders’ interests, potentially affecting liquidity and pricing.

Investment Minimums and Settlement Information

Minimum investment is $1,000 with increments of $1,000. The notes carry CUSIP 063941CA4 and ISIN US063941CA48. They are not listed on any U.S. securities exchange or automated quotation system, trading exclusively over-the-counter, which may limit liquidity.

Settlement occurred on July 22, 2026, five business days after the July 17 trade date. The notes have an approximate three-year term if not called early, maturing on July 20, 2029. This duration locks investors’ capital unless early call provisions are met, potentially restricting portfolio flexibility.

Risk Factors and Investor Guidance

The Bank references additional risk disclosures in the pricing supplement and prospectus, emphasizing that "investment in the Notes involves certain risks." Key concerns include estimated value and liquidity risks, limited secondary market trading, and unpredictable pricing.

The notes combine multiple risks: equity exposure to volatile tech stocks without downside protection, credit risk concentrated in a single issuer, contingent coupon uncertainty, absence of deposit insurance, no dividend or voting rights, and limited liquidity. The early call caps upside while full principal loss risk remains, making these notes suitable only for sophisticated investors seeking derivative exposure rather than principal preservation or steady income.

Secondary Market and Liquidity Considerations

The notes are not listed on any exchange and trade solely OTC. Secondary market liquidity depends on dealer willingness to quote and trade, which may fluctuate with market conditions and demand. SCUSA may act as market maker but is not obligated to provide continuous pricing or liquidity.

Investors seeking early exit should anticipate potential bid-ask spreads, limited dealer inventory, and difficulty obtaining firm quotes, especially during periods of market stress or heightened technology sector volatility. Secondary market prices may differ significantly from initial estimated values due to changing market factors and the Bank’s funding costs.