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The Bank of Nova Scotia has announced the pricing of Autocallable Contingent Barrier Return Enhanced Notes due August 5, 2031, tied to the Invesco KBW Bank ETF. These structured notes offer investors the potential for 125% upside participation if the reference asset outperforms, while exposing them to downside risk if the ETF falls below a 75% barrier level. Scheduled to begin trading on August 5, 2026, this new capital market product is being issued through the bank’s Scotia Capital subsidiary.
Key Points
- NYSE ticker: BNS
- The Bank of Nova Scotia priced Autocallable Contingent Barrier Return Enhanced Notes linked to the Invesco KBW Bank ETF, maturing August 5, 2031
- Features include a 14.25% call premium on automatic call, 125% participation rate on gains, and a 75% barrier level providing principal protection if maintained
- Expected trade date July 31, 2026, settlement August 5, 2026; minimum investment of $1,000 and increments thereof
Structured Note Features and Payoff Details
The Bank of Nova Scotia structured these notes to deliver multiple payoff scenarios based on the Invesco KBW Bank ETF’s performance over five years. The notes will automatically call if the ETF’s closing value on any review date is at or above 100% of its initial level, paying investors their principal plus a $142.50 call premium per $1,000 principal, equivalent to 14.25% additional return. This autocall feature caps upside gains if the ETF appreciates significantly during the term.
If the notes are not called early and the ETF closes above its initial value at maturity, investors receive a return equal to 125% of the ETF’s positive performance. For example, a 10% ETF gain would translate into a 12.5% return on the notes. This enhanced participation is contingent on the notes not being called before maturity and on positive ETF performance.
Principal Protection and Downside Risk Parameters
The notes include a contingent barrier set at 75% of the ETF’s initial value. If the notes are not called and the final ETF closing value remains at or above this barrier, investors receive full principal back at maturity, even if the ETF declined during the holding period. This barrier provides partial downside protection, limiting losses unless the ETF drops more than 25% from its initial level.
If the ETF closes below the 75% barrier at maturity, investors bear full principal risk and losses equal to the ETF’s depreciation, potentially losing their entire principal. Unlike direct ETF investments, these notes do not pay interest or coupons during the approximately 60-month term to offset negative market movements.
Offering Terms and Investment Requirements
Issued at 100% of principal, these notes are distributed by Scotia Capital (USA) Inc., an affiliate of the bank. Scotia Capital may receive up to a 2.50% underwriting discount when selling to other registered broker-dealers, while direct investors pay the full issue price. The bank anticipates retaining at least 97.50% of proceeds per note after underwriting and distribution costs. The trade date was expected on July 31, 2026, with settlement on August 5, 2026.
Minimum investment is $1,000, with additional purchases in $1,000 multiples. The securities carry CUSIP 063941DZ8 and ISIN US063941DZ89. The preliminary pricing supplement, filed under SEC Rule 424(b)(3) with registration number 333-282565 and amended July 22, 2026, notes that these notes are not listed on any U.S. exchange or automated quotation system, so secondary market liquidity is uncertain.
Initial Valuation and Pricing Insights
The initial estimated value of the notes on the trade date ranged between $911.23 and $941.23 per $1,000 principal, below the $1,000 issue price. This difference reflects the bank’s internal funding rate, underwriting fees, and structuring costs including hedging. The bank’s internal funding rate is generally lower than rates on conventional fixed-rate debt.
This valuation gap represents the embedded economic costs borne by investors upfront. The bank noted that note values fluctuate based on multiple factors and cannot be precisely forecasted. Scotia Capital may engage in secondary market transactions shortly after issuance, potentially offering prices above estimated value as it reimburses some hedging and structural costs over about three months following issuance.
Credit Risk and Debt Characteristics
These notes are unsubordinated, unsecured debt obligations of The Bank of Nova Scotia, with payments dependent on the bank’s creditworthiness. They are not insured by the Canada Deposit Insurance Corporation, U.S. FDIC, or any government agency. Investors assume full credit risk of the bank, and any credit deterioration could affect payments.
Investment in these notes involves risks beyond the underlying ETF’s performance. Note holders do not have direct ownership, voting rights, or dividend entitlements in the ETF or its components. Thus, investors bear both the bank’s credit risk and the market risk of the banking sector ETF without benefits of direct ETF ownership.
Distribution and Market-Making Details
Scotia Capital (USA) Inc. manages distribution by purchasing notes at principal and selling to broker-dealers at up to 2.50% discount or directly to investors at full price. This means retail investors buying directly pay $1,000 per note, while broker-dealers receive a wholesale discount they may pass on or retain.
The preliminary pricing supplement states Scotia Capital may act as a market maker post-issuance, buying and selling notes in secondary markets. This activity could create conflicts of interest, as secondary prices and liquidity may diverge from estimated values due to hedging and structural cost considerations.
Reference Asset: Invesco KBW Bank ETF
The notes’ reference asset is the Invesco KBW Bank ETF, a fund focused on the U.S. banking sector. Payoffs depend on the ETF’s closing values on review dates and at maturity. Factors such as banking sector performance, regulations, interest rates, and industry competition influence the ETF’s value and thus the notes’ returns or losses.
By linking to a broad banking ETF rather than individual stocks, the notes offer diversified exposure. However, the autocall feature limits upside gains if the ETF rises significantly above 100% before maturity, terminating the investment and locking in the call premium.
Tax and Legal Considerations
Issued as unsubordinated, unsecured debt, these notes are derivative products linked to the ETF rather than direct ETF ownership. This distinction affects tax treatment, which investors should review carefully in the accompanying prospectus and supplements.
The U.S. SEC and state securities commissions have not approved or disapproved the notes or the preliminary pricing supplement. The July 22, 2026 amendment superseded prior supplements, reflecting material changes before final pricing. Investors should note the preliminary nature of the information and that final terms were set on the trade date.
Risks and Considerations for Investors in Bank ETF-Linked Notes
These structured notes carry risks tied to both the banking sector and derivative product features. The banking industry faces regulatory, interest rate, credit, and competitive challenges that could depress the ETF below the 75% barrier, causing principal losses. Changes in regulations or economic conditions could rapidly impact the reference asset.
The autocallable design introduces timing risk: a rapid ETF rise triggers the call and locks in a 14.25% premium but caps further gains. If the ETF declines modestly but stays above the barrier, investors get principal protection but no positive return, potentially underperforming direct ETF ownership. The initial valuation gap indicates investors pay a structural premium that may not be recovered.
