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The Bank of Nova Scotia has filed a preliminary pricing supplement for a new structured debt issuance: senior unsecured equity index-linked notes maturing August 3, 2029, linked to the Russell 2000 Index. These notes feature an automatic call mechanism with a minimum 10.75% call premium if the index closes at or above its initial level about one year post-issuance, 125% upside participation if not called, and a 10% downside buffer. However, investors face potential losses up to 90% of principal if the index declines sharply. This issuance continues the bank’s strategy of offering complex market-linked products that provide structured exposure to broad equity market performance.
Key Points
- NYSE: BNS
- Preliminary pricing supplement filed July 20, 2026, for senior unsecured auto-callable notes linked to the Russell 2000 Index, maturing August 3, 2029
- Initial offering price of $1,000 per note; estimated secondary market value ranges from $932.76 to $962.76 per note; call date set for August 5, 2027, approximately one year after issuance
- Investors should thoroughly review prospectus materials, risk disclosures, and valuation methods before investing in these complex principal-at-risk securities
Note Structure and Automatic Call Feature Linked to Russell 2000
The Bank of Nova Scotia’s offering incorporates a multi-tiered payment design aimed at delivering enhanced returns under favorable market conditions while limiting upside through an automatic call. If the Russell 2000 Index closes at or above its initial level on the call date roughly one year after issuance, the notes will be automatically called, paying investors their full principal plus at least a 10.75% call premium, equating to a minimum $107.50 gain per $1,000 principal. This automatic call caps returns at the call premium if triggered, preventing participation in further index appreciation during the remaining term.
The call settlement occurs three business days after the call date. Upon automatic call, the notes cease to be outstanding, and investors relinquish all rights under the securities. The bank does not provide proactive notification of automatic call, placing responsibility on investors to monitor index performance on and after the call date. This structure may result in opportunity cost if the index rallies strongly after the call is triggered, as investors forfeit potential leveraged upside gains available if the notes remain outstanding.
Upside Participation and Maturity Payment Terms
If the notes are not called at the one-year anniversary, investors receive a maturity payment based on the Russell 2000 Index’s performance through July 31, 2029. Should the index close above its initial level, investors receive their $1,000 principal plus 125% of the index’s percentage gain. This leveraged upside means a 10% index increase yields a 12.5% return above principal, or $125 per $1,000 note. This feature compensates for the capped returns imposed by the automatic call.
The maturity payment also includes a 10% downside buffer. If the index closes below its initial level but within 10%, investors receive full principal without loss. However, if the index declines beyond 10%, losses occur dollar-for-dollar on the excess decline, potentially resulting in up to 90% principal loss. The final valuation date is July 31, 2029, with maturity on August 3, 2029, subject to postponement due to market disruptions as detailed in the offering documents.
Risk Profile and Principal-at-Risk Characteristics
The Bank of Nova Scotia clearly identifies these notes as principal-at-risk instruments, differing significantly from traditional unsecured debt. They pay no periodic interest, do not guarantee principal repayment at maturity, and are subject to mandatory redemption via the automatic call. Investors risk losing up to 90% of principal if the Russell 2000 Index falls beyond the buffer. The notes’ complex features and risks require careful review of the product supplement and risk disclosures prior to investment.
Payments depend on the bank’s creditworthiness; the notes are not insured by the Canada Deposit Insurance Corporation, U.S. FDIC, or any other government agency. As senior unsecured obligations, investors bear both market risk from index linkage and issuer credit risk. The notes are unlisted and intended for hold-to-maturity, limiting liquidity and exit options before August 3, 2029.
Secondary Market Valuation and Pricing Details
The bank estimates secondary market values between $932.76 (93.276%) and $962.76 (96.276%) per note as of the filing date. This valuation accounts for dealer spreads and expected hedging profits, which negatively impact secondary prices. The original $1,000 offering price includes agent discounts; Scotia Capital (USA) Inc. or affiliates purchase notes from the bank and distribute them via registered broker dealers, including Wells Fargo Securities. Net proceeds to the bank are approximately $974.25 per note, excluding hedging profits.
Distribution involves multiple compensation layers: Wells Fargo Securities receives up to $25.75 per note (2.575%) discount, potentially shared with affiliates and dealers through selling concessions up to $20.00 (2.00%) and distribution fees of $0.75 (0.075%). Selected dealers may also earn marketing fees up to $3.00 per note. These embedded costs affect expected investor returns and are reflected in the estimated secondary market range.
Russell 2000 Index Linkage and No Income Payments
The notes are linked to the Russell 2000 Index, representing U.S. small-cap equities. Unlike direct index investments or ETFs, these notes pay no dividends or periodic distributions. Investors receive only the final maturity payment or call premium based on index price changes, concentrating returns solely on capital appreciation or depreciation over three years.
The index starting level determines both the automatic call trigger at one year and maturity payment at three years. Index volatility may cause the notes to be called early, locking in the 10.75% call premium and potentially missing subsequent index gains through 2029.
Preliminary Pricing and Registration Information
The Bank of Nova Scotia filed the preliminary pricing supplement on July 20, 2026, under Rule 424(b)(2) referencing Registration Statement No. 333-282565. This relates to the Senior Note Program, Series A, with final pricing expected by July 31, 2026. Accompanying documents include product supplement No. WF-1, underlier supplement, prospectus supplement, and base prospectus dated November 8, 2024. The issue date is August 5, 2026, allowing limited time for investors to decide.
Final terms, including the exact call premium above 10.75%, remain subject to completion. The Securities and Exchange Commission and state regulators have not approved or disapproved the securities or the disclosure. This filing serves as the formal registration and offering document, requiring thorough review of risk factors and product details.
Distribution and Affiliate Roles
Scotia Capital (USA) Inc., an affiliate of the bank, acts as primary distributor, purchasing notes and selling through registered broker dealers such as Wells Fargo Securities. Scotia Capital or affiliates may engage in secondary market making, potentially creating conflicts of interest due to profits from both initial distribution and trading spreads.
Investors buying through Scotia Capital or Wells Fargo advisors should understand the embedded compensation in the $1,000 offering price, which includes a $25.75 agent discount. Wells Fargo Advisors may receive additional fees. Investors are advised to request full disclosure of all compensation their advisors or institutions receive.
Complexity and Risk Disclosures
The bank emphasizes the notes’ complex features and risks, directing investors to "Selected Risk Considerations" on page P-9 of the pricing supplement and comprehensive risk sections in the product supplement and prospectus. The auto-callable structure, leveraged upside, and downside buffer create non-linear returns distinct from traditional equity or debt. Understanding the automatic call mechanism is critical to avoid unexpectedly limited returns.
Potential losses up to 90% of principal highlight significant risk, especially given the three-year term and uncertain Russell 2000 performance. The absence of periodic income means no interim recovery from dividends. Lack of exchange listing and intended hold-to-maturity design limit liquidity. Credit risk of the bank adds further potential loss, although senior unsecured status offers priority over equity holders.
Comparison With Direct Index Investments and Alternatives
Investors should compare these notes to direct Russell 2000 index funds or ETFs, which offer full index participation, dividend income, and daily liquidity. While the notes provide 125% upside participation, the automatic call caps returns if the index rises within one year. The 10% downside buffer offers limited protection compared to full downside exposure in direct investments.
The estimated secondary market value reflects embedded costs and hedging profit expectations. Investors should assess whether the structured product’s optionality justifies its cost relative to passive index funds. The three-year maturity and limited liquidity distinguish this offering from more flexible index investment options that allow capital reallocation or risk reduction.
