Bank of Nova Scotia Launches Capped Buffered Enhanced Participation Notes Tied to MSCI EAFE Index

Enhanced Participation Notes: Structure and Payment Details

The Bank of Nova Scotia’s notes are derivative instruments designed to offer enhanced upside exposure to the MSCI EAFE Index while incorporating downside protection. Non-interest bearing, the notes’ returns depend solely on the index’s performance from the trade date to a valuation date approximately 25 to 28 months later. Maturity is expected on the second business day after the valuation date, with all payments deferred until maturity.

The payout structure includes three scenarios: if the index closes above its initial level, investors receive $1,000 principal plus 160% of the index’s gain, subject to a capped maximum payment. If the index declines up to 15%, investors are protected and receive full principal. For declines exceeding 15%, losses are magnified at about 1.1765% per 1% drop beyond the 85% threshold, potentially resulting in total principal loss.

Pricing and Estimated Valuation Insights

The notes are offered at 100% of principal with no disclosed underwriting fees, with the Bank receiving all proceeds. However, the initial estimated value at pricing is between $944.30 and $974.30 per $1,000 principal, significantly below the issue price. This reflects the Bank’s internal funding costs, hedging expenses, and the embedded option values.

The internal funding rate, representing the Bank’s borrowing cost for similar structured products, is generally lower than rates for fixed-rate debt, which reduces economic terms for investors. The notes’ actual value fluctuates based on multiple factors and cannot be precisely forecasted.

Downside Protection and Risk Structure

Investors benefit from a 15% buffer against losses on the MSCI EAFE Index, meaning no capital loss if declines remain within this range. This buffer offers meaningful protection against moderate market downturns compared to direct index exposure.

Beyond the 15% buffer, losses are leveraged at about 117.65%, amplifying downside risk and potentially leading to full principal loss. The filing highlights this material risk for investors once the buffer threshold is exceeded.

Credit Risk and Obligation Characteristics

The notes are unsecured, unsubordinated obligations of The Bank of Nova Scotia, lacking special claims beyond general creditors. Payments depend on the Bank’s creditworthiness and solvency. These notes are not insured by the Canada Deposit Insurance Corporation (CDIC), the U.S. Federal Deposit Insurance Corporation (FDIC), or any government deposit insurance, exposing investors to counterparty credit risk.

The filing also notes risk that the Bank might be unable or unwilling to fulfill payment obligations at maturity. Scotia Capital (USA) Inc., an affiliate, will purchase the notes for distribution through registered broker-dealers and may provide secondary market liquidity, which could create conflicts of interest for investors.

Upside Cap and Maximum Payment Limits

The maximum payment per $1,000 principal is expected between $1,262.56 and $1,308.80, capping total returns regardless of index performance. This cap limits upside gains beyond the threshold despite 160% participation up to that point.

The difference between the issue price and initial estimated value is mainly due to embedded options funding the protection and cap features, compensating the Bank and option writers for associated risks.

Valuation Approach and Secondary Market Factors

After establishing the initial index level on the trade date, the final note value depends solely on the index level at valuation 25 to 28 months later. Interim price changes do not affect payments. The notes provide price return exposure only, excluding dividends.

Scotia Capital (USA) Inc. may act as a secondary market maker but is not obligated to do so. Secondary prices (excluding bid-ask spreads) would reflect its market value estimates plus adjustments. The notes will not be listed on any exchange, potentially limiting liquidity and relying on Scotia Capital’s market-making willingness.

Reference Asset and Investment Structure Details

The notes track the MSCI EAFE Index, representing developed markets outside the U.S., including Europe, Australia, and the Far East. Returns are based on percentage changes from the initial to final index levels. Investors do not gain ownership, voting rights, or dividend entitlements from index constituents.

As derivative instruments, these notes do not confer direct claims on underlying securities or companies. Returns exclude dividends, reflecting price returns only, which may differ from total returns experienced by direct index investors.

Regulatory Filings and Disclosures

The notes are offered under the Bank’s shelf registration (No. 333-282565) filed with the SEC. The pricing supplement was preliminarily filed under Rule 424(b)(2) on July 20, 2026. The SEC and state regulators have not approved the notes, and any claim of such approval is unlawful. Sales are prohibited where not permitted by law.

Scotia Capital (USA) Inc. and affiliates may use the pricing supplement in market-making. Unless stated otherwise, purchases represent market-making transactions. The Bank may issue additional notes later with different terms, potentially altering economics.

Investment Risks and Complexity Considerations

The Bank highlights risks detailed in the pricing supplement (page P-15), product supplement (page PS-6), and prospectus (pages S-2 and 8). Risks include market exposure, credit risk, liquidity constraints, and opportunity costs due to valuation disparities.

The initial estimated value being below issue price underscores economic costs from embedded options, funding, hedging, and distribution. Investors buying at face value receive notes initially worth less per the Bank’s valuation models, which may complicate early liquidation efforts.