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The Bank of Nova Scotia has launched $436 million worth of Capped Buffered Enhanced Participation Notes tied to the MSCI EAFE Index, with maturity set for September 8, 2028. These notes provide investors with 160% enhanced upside participation if the index appreciates, subject to a payment cap, alongside a 15% downside buffer to mitigate losses. Priced on July 21, 2026, this structured product enables the bank to tap capital markets while offering investors defined-risk exposure to international equities.
Key Points
- NYSE: BNS
- The Bank of Nova Scotia issued $436 million in structured notes linked to the MSCI EAFE Index, maturing September 8, 2028
- Notes feature a 160% participation rate on positive index returns, capped at $1,305.44 per $1,000 principal, with a 15% downside buffer protection
- Initial estimated value at pricing was $982.90 per $1,000 principal, below the 100% original issue price
Enhanced Participation Notes: Structure and Payment Details
The Bank of Nova Scotia’s notes establish a defined payment framework based on MSCI EAFE Index performance from the trade date of July 21, 2026, through the valuation date of September 6, 2028. The initial index level is fixed at 3,119.37, serving as the benchmark for performance measurement. These notes do not pay interest; returns depend entirely on index performance at maturity.
Three payment scenarios apply: if the final index level exceeds the initial, investors receive their $1,000 principal plus gains at 160% participation, capped at $1,305.44 per $1,000 principal. If the index declines up to 15%, investors recover full principal without loss. For declines beyond 15%, losses accelerate at approximately 1.1765% per 1% drop below the 85% threshold, potentially resulting in total principal loss.
Downside Buffer and Loss Acceleration Mechanism
The notes include a 15% downside buffer, protecting investors fully against index drops up to 15% from the initial 3,119.37 level, equivalent to about 2,651.46. Within this buffer zone, principal is preserved regardless of market dips.
Beyond this buffer, losses increase at a rate of roughly 117.65% for declines exceeding 15%. For example, a 20% index drop results in losses exceeding the proportional decline, reflecting the buffer’s design to protect the issuer’s hedging while transferring additional risk to investors during severe downturns.
Upside Cap and Maximum Return Limitations
While offering 160% participation on gains, the notes cap maximum payments at $1,305.44 per $1,000 principal, limiting total returns to approximately 30.544%. The index must rise about 19.09% from its initial level to reach this cap, after which no further upside is paid. This cap balances enhanced participation with the issuer’s hedging costs and funding needs.
Valuation and Pricing Approach
At pricing on July 21, 2026, the Bank of Nova Scotia estimated the notes’ value at $982.90 per $1,000 principal, below the 100% issue price. This valuation reflects internal funding rates, underwriting discounts, and hedging costs, resulting in a $17.10 spread per $1,000 principal between estimated value and issue price.
Secondary Market Trading and Liquidity
Scotia Capital (USA) Inc., an affiliate, agreed to purchase the notes for distribution to registered broker-dealers and may act as a market maker post-issuance. Secondary market pricing will include a declining spread until October 21, 2026, after which pricing reflects Scotia Capital’s estimated value alone. The notes will trade over-the-counter without listing on U.S. exchanges, and Scotia Capital is not obligated to maintain a market, potentially limiting liquidity.
Issuer Credit Risk and Security Status
Payments depend on the creditworthiness of The Bank of Nova Scotia. The notes are unsecured, unsubordinated obligations ranking equally with other unsecured debt. They are not insured by the Canada Deposit Insurance Corporation, the U.S. FDIC, or any government agency, exposing investors to credit risk and potential principal loss if the bank faces financial distress.
Index Measurement and Valuation Dates
Performance is measured from July 21, 2026 to September 6, 2028, with payments on September 8, 2028. Only the index levels on these two dates affect the final payment, employing a European-style payoff structure without interim adjustments.
Additional Issue Information and Distribution
The pricing supplement dated July 21, 2026 set the $436 million issue size at 100% of principal, generating proceeds without disclosed underwriting commissions. The bank may issue additional notes later with varying terms, meaning returns depend on the specific issue price paid.
Risks and Absence of Dividend or Ownership Rights
Investors should review detailed risk disclosures, including liquidity, credit, and valuation model risks. The notes are derivatives based on MSCI EAFE price returns only, excluding dividends or total return components. Investors hold no ownership, voting rights, or claims on underlying securities.
Regulatory Status and Disclosure
The offering is registered under Form 424B2 (registration number 333-282565). Neither the SEC nor state regulators have approved or disapproved the notes or related documents. Scotia Capital (USA) Inc. acts as distributor and potential market maker, with disclosures addressing conflicts of interest inherent in this role.
