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The Bank of Nova Scotia has submitted a preliminary pricing supplement for a new structured debt issuance featuring autocallable contingent buffered return notes maturing on August 5, 2031. Scheduled to price on July 31, 2026, these notes are linked to the performance of three reference assets: the State Street SPDR S&P Regional Banking ETF, the S&P 500 Index, and the State Street Energy Select Sector SPDR ETF. This offering provides investors an alternative investment option with sector-specific exposure combined with embedded call and downside buffer mechanisms.
Key Points
- NYSE: BNS
- Bank of Nova Scotia filed a pricing supplement for five-year autocallable contingent buffered return notes, maturing August 5, 2031
- Notes linked to the worst performing of three reference assets: State Street SPDR S&P Regional Banking ETF, S&P 500 Index, and State Street Energy Select Sector SPDR ETF
- Expected pricing date is July 31, 2026; settlement anticipated on August 5, 2026; minimum investment of $1,000 and increments of $1,000 thereafter
Autocallable Note Structure and Payoff Details
The Bank of Nova Scotia’s newly issued notes incorporate an autocallable feature allowing for potential early redemption if predetermined market conditions are satisfied. According to the filing, the notes will be automatically called if, on the review date, the closing level of each reference asset meets or surpasses its call threshold. Upon an automatic call, investors receive their principal plus a call premium, with no further payments due.
If the notes are not called early, the final payout depends on the performance of the lowest performing reference asset among the three indices and ETFs. Investors will earn returns based on the positive change from initial to final value of this worst-performing asset, provided its final value exceeds the initial value. This "worst of" payoff structure ties returns to the equity reference asset or index that underperforms the others, differing from traditional fixed-income products.
Downside Protection and Buffer Mechanism
The offering includes a contingent buffer designed to shield investors from partial losses. If the notes are not called and the final value of the worst-performing reference asset is at or below its initial value but remains above its buffer level, investors will receive full principal at maturity. The buffer is set at 30% below the initial value, offering significant downside protection within this range.
However, if the final value falls below the buffer threshold, investors face substantial losses. The filing specifies that for every 1% the final value drops below the initial value beyond the 30% buffer, investors lose approximately 1.4286% of principal. The document warns that under adverse market conditions, investors could lose up to 100% of their principal, underscoring the leveraged loss exposure beyond the buffer.
Reference Assets and Investment Strategy
The notes track three distinct U.S. equity market segments: the State Street SPDR S&P Regional Banking ETF for regional banks, the S&P 500 Index for broad market exposure, and the State Street Energy Select Sector SPDR ETF for the energy sector. Returns are linked to the lowest performing of these assets, concentrating downside risk in the weakest sector during the term.
This multi-asset linkage creates a complex risk profile where investors benefit only if all three assets appreciate, but bear full downside risk of the worst performer. The filing clarifies that these notes do not represent direct investments in the underlying assets, and investors hold no economic rights, claims, voting privileges, or dividend entitlements related to the reference asset constituents.
Pricing and Initial Valuation Estimates
The notes are offered at par value, with a minimum purchase of $1,000 and additional investments in $1,000 increments. The filing reveals an initial estimated value ranging between $927.29 and $957.29 per $1,000 principal at pricing, reflecting embedded structuring, hedging, and distribution costs.
The Bank determined this valuation using internal pricing models incorporating its funding rate and market assumptions. The original issue price exceeds this estimate due to underwriting commissions and structuring expenses. The Bank’s internal funding rate is typically lower than rates on conventional fixed-rate debt, reducing the economic value delivered to investors at issuance.
Secondary Market Liquidity and Valuation Dynamics
Scotia Capital (USA) Inc., an affiliate of the Bank, will purchase the notes at par and distribute them to registered broker-dealers at the same price. Scotia Capital may pay third-party dealers a structuring fee up to $2.50 per note for distribution. It will also engage in market-making activities post-sale using the final pricing supplement.
The filing discloses that the secondary market price may temporarily exceed the Bank’s estimated value on the trade date due to potential reimbursement of hedging and transaction costs. This reimbursement period is expected to last about three months after issuance, influenced by note tenor and dealer agreements.
Credit Risk and Investor Considerations
The notes are unsecured and unsubordinated obligations of The Bank of Nova Scotia, exposing investors to the Bank’s credit risk. Payments depend solely on the Bank’s creditworthiness, with no insurance from Canada Deposit Insurance Corporation, U.S. Federal Deposit Insurance Corporation, or other agencies. Investors bear both credit and market-linked risks tied to the three reference assets.
The notes will not be listed on U.S. exchanges or quotation systems, potentially limiting liquidity and price transparency for investors seeking early exit. The Bank cautions that note values fluctuate based on multiple factors and advises thorough review of additional risk disclosures related to estimated value and liquidity.
Underwriting and Distribution Details
Distribution is managed through Scotia Capital, which purchases notes from the Bank at par and resells to broker-dealers at the same price, earning structuring fees instead of traditional underwriting commissions. Final terms, including call values and premiums, will be set on the July 31, 2026 trade date and disclosed in the final pricing supplement at settlement.
Neither the SEC nor any state securities regulator has approved or disapproved these notes or reviewed the pricing supplement’s accuracy. The preliminary status indicates all material terms remain subject to change before finalization.
Term, Settlement, and Identification Information
Pricing is expected on July 31, 2026, with settlement on August 5, 2026, establishing an approximate five-year term if not called early, with maturity on August 5, 2031. The notes carry CUSIP 063941ER5 and ISIN US063941ER54 for identification and tracking.
The notes do not pay interest or coupons prior to maturity; returns depend entirely on reference asset performance and the embedded call feature. All payments will be made in cash, with no equity ownership or fractional shares granted to investors.
Risk Factors and Investor Guidance
The preliminary filing outlines multiple risk categories requiring investor attention before commitment. It directs readers to "Additional Risks" on page P-9 of the preliminary document, "Additional Risk Factors Specific to the Notes" in the product supplement, and "Risk Factors" in the prospectus supplements. These cover risks related to linked-note structures, market volatility, liquidity constraints, and credit exposure.
Specifically, the filing warns that the initial estimated value may be substantially lower than the purchase price and that secondary market liquidity could be limited or unavailable. It highlights that the Bank’s internal funding rate and structured note design result in investor economics that differ significantly from traditional fixed-income products, with embedded costs that may not be transparent to retail investors.
