The Bank of Nova Scotia Trigger GEARS (the
“Securities”) are senior unsecured debt securities issued by The Bank of Nova Scotia (“BNS” or the “issuer”)
linked to the least performing of the Russell 2000® Index and the S&P 500® Index (each an “underlying
asset” and collectively the “underlying assets”). The amount you receive at maturity will be based on the direction
and percentage change in the level of the underlying asset with the lowest underlying return from the trade date to the final valuation
date (such underlying asset, the “least performing underlying asset” and such return, the “least performing underlying
return”) and whether the closing level of any underlying asset on the final valuation date (its “final level”) is less
than its downside threshold. If the least performing underlying return is positive, BNS will pay you a cash payment per Security at maturity
equal to the principal amount plus a percentage return equal to the least performing underlying return multiplied by the upside gearing.
If the least performing underlying return is zero or negative and the final level of the least performing underlying asset is equal to
or greater than its downside threshold, BNS will pay you a cash payment per Security at maturity equal to the principal amount. If, however,
the least performing underlying return is negative and the final level of the least performing underlying asset is less than its downside
threshold, BNS will pay you a cash payment per Security at maturity that is less than the principal amount, if anything, resulting in
a percentage loss on your principal amount equal to the least performing underlying return and, in extreme situations, you could lose
all of your investment in the Securities. Investing in the Securities involves significant risks. The Securities do not pay interest.
You may lose a significant portion or all of your investment in the Securities. You will be exposed to the individual market risk of each
underlying asset on the final valuation date and any decline in the level of one underlying asset may negatively affect your return and
will not be offset or mitigated by a lesser decline or any potential increase in the level of any other underlying asset. The contingent
repayment of principal applies only if you hold the Securities to maturity. Any payment on the Securities, including any repayment of
principal, is subject to the creditworthiness of BNS. If BNS were to default on its payment obligations, you may not receive any amounts
owed to you under the Securities and you could lose your entire investment.
Additional
Information about BNS and the Securities
You should read this pricing supplement together with the
prospectus dated December 26, 2018, as supplemented by the prospectus supplement dated November 19, 2020 and the product prospectus supplement
(Equity Linked Index Notes, Series A) dated November 19, 2020, relating to our Senior Note Program, Series A, of which these Securities
are a part. Capitalized terms used but not defined in this pricing supplement will have the meanings given to them in the product prospectus
supplement.
The Securities may vary from the terms described in the accompanying
prospectus, accompanying prospectus supplement and accompanying product prospectus supplement in several important ways. You should read
this pricing supplement carefully, including the documents incorporated by reference herein. In the event of any conflict between this
pricing supplement and any of the foregoing, the following hierarchy will govern: first, this pricing supplement; second, the accompanying
product prospectus supplement; third, the accompanying prospectus supplement; and last, the accompanying prospectus. You may access these
documents on the SEC website at www.sec.gov as follows (or if that address has changed, by reviewing our filings for the relevant date
on the SEC website).
This pricing supplement, together with the documents listed
below, contains the terms of the Securities and supersedes all prior or contemporaneous oral statements as well as any other written materials
including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures
or other educational materials of ours. You should carefully consider, among other things, the matters set forth in “Key Risks”
herein, in “Additional Risk Factors Specific to the Securities” of the accompanying product prospectus supplement and in “Risk
Factors” of the accompanying prospectus supplement and of the accompanying prospectus, as the Securities involve risks not associated
with conventional debt securities.
We urge you to consult your investment, legal, tax, accounting
and other advisors concerning an investment in the Securities in light of your particular circumstances.
You may access these documents on the SEC website at www.sec.gov as follows:
References to “BNS”, “we”, “our”
and “us” refer only to The Bank of Nova Scotia and not to its consolidated subsidiaries and references to the “Trigger
GEARS” or the “Securities” refer to the Securities that are offered hereby. Also, references to the “accompanying
product prospectus supplement” mean the BNS product prospectus supplement, dated November 19, 2020, references to the “accompanying
prospectus supplement” mean the BNS prospectus supplement, dated November 19, 2020 and references to the “accompanying prospectus”
mean the BNS prospectus, dated December 26, 2018.
BNS reserves the right to change the terms of, or reject
any offer to purchase, the Securities prior to their issuance. In the event of any changes to the terms of the Securities, BNS will notify
you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes in which
case BNS may reject your offer to purchase.
Investor
Suitability
The Securities may be suitable for you if:
|
|
¨
|
You fully understand and are willing to accept the risks inherent in an investment in the Securities,
including the risk of loss of your entire investment.
|
|
|
¨
|
You understand and accept that an investment in the Securities is linked to the performance of the least
performing underlying asset and not a basket of the underlying assets, that you will be exposed to the individual market risk of each
underlying asset and that you may lose a significant portion or all of your investment if the final level of the least performing underlying
asset is less than its downside threshold.
|
|
|
¨
|
You can tolerate a loss of a significant portion or all of your investment and are willing to make an
investment that may have the same downside market risk as a hypothetical investment in the least performing underlying asset or the stocks
comprising the least performing underlying asset.
|
|
|
¨
|
You believe that the level of each underlying asset will appreciate over the term of the Securities.
|
|
|
¨
|
You are willing to invest in the Securities based on the downside thresholds and the upside gearing indicated
on the cover hereof.
|
|
|
¨
|
You can tolerate fluctuations in the price of the Securities prior to maturity that may be similar to
or exceed the downside fluctuations in the levels of the underlying assets and the prices of the underlying constituents.
|
|
|
¨
|
You do not seek current income from your investment and are willing to forgo any dividends paid on the
stocks comprising each underlying asset (the “underlying constituents”).
|
|
|
¨
|
You understand and are willing to accept the risks associated with the underlying assets.
|
|
|
¨
|
You are willing to hold the Securities to maturity and accept that there may be little or no secondary
market for the Securities.
|
|
|
¨
|
You are willing to assume the credit risk of BNS for all payments under the Securities and understand
that if BNS defaults on its obligations you may not receive any amounts due to you, including any repayment of principal.
|
The Securities may not be suitable for you if:
|
|
¨
|
You do not fully understand or are not willing to accept the risks inherent in an investment in the Securities,
including the risk of loss of your entire investment.
|
|
|
¨
|
You do not understand or are unwilling to accept that an investment in the Securities is linked to the
performance of the least performing underlying asset and not a basket of the underlying assets, that you will be exposed to the individual
market risk of each underlying asset and that you may lose a significant portion or all of your investment if the final level of the least
performing underlying asset is less than its downside threshold.
|
|
|
¨
|
You require an investment designed to provide a full return of principal at maturity.
|
|
|
¨
|
You cannot tolerate a loss of a significant portion or all of your investment or are unwilling to make
an investment that may have the same downside market risk as a hypothetical investment in the least performing underlying asset or its
underlying constituents.
|
|
|
¨
|
You believe that the level of any underlying asset will decline during the term of the Securities.
|
|
|
¨
|
You are unwilling to invest in the Securities based on the downside thresholds or the upside gearing indicated
on the cover hereof.
|
|
|
¨
|
You cannot tolerate fluctuations in the price of the Securities prior to maturity that may be similar
to or exceed the downside fluctuations in the levels of the underlying assets or the prices of the underlying constituents.
|
|
|
¨
|
You do not understand or are not willing to accept the risks associated with the underlying assets.
|
|
|
¨
|
You seek current income from your investment or prefer to receive any dividends paid on the underlying
constituents.
|
|
|
¨
|
You are unable or unwilling to hold the Securities to maturity or you seek an investment for which there
will be an active secondary market.
|
|
|
¨
|
You are not willing to assume the credit risk of BNS for all payments under the Securities, including
any repayment of principal.
|
The investor suitability considerations identified above
are not exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual circumstances and you
should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered
the suitability of an investment in the Securities in light of your particular circumstances. You should review “Information About
the Underlying Assets” herein for more information on the underlying assets. You should also review “Key Risks” herein
and the more detailed “Additional Risk Factors Specific to the Notes” in the accompanying product prospectus supplement for
risks related to an investment in the Securities.
Final
Terms
|
Issuer
|
The Bank of Nova Scotia
|
|
Issue
|
Senior Note Program, Series A
|
|
Agents
|
Scotia Capital (USA) Inc. (“SCUSA”) and UBS Financial Services Inc. (“UBS”)
|
|
Principal Amount
|
$10 per Security (subject to a minimum investment of 100 Securities)
|
|
Term
|
Approximately 5 years.
|
|
Underlying Assets
|
The Russell 2000® Index and the S&P 500® Index
|
|
Upside Gearing
|
1.29
|
|
Payment at Maturity (per Security)
|
If the least performing underlying return is positive, BNS will pay you an amount in cash equal to:
|
|
$10 × (1 + Least Performing Underlying Return x Upside Gearing)
|
|
|
If the least performing underlying return is zero or
negative and the final level of the least performing underlying asset is equal to or greater than its downside threshold, BNS will
pay you an amount in cash equal to:
Principal Amount of $10
|
|
|
If the least performing underlying return is negative and the final level of the least performing underlying asset is less than its downside threshold, BNS will pay you an amount in cash that is less than your principal amount, if anything, equal to:
|
|
|
$10 × (1 + Least Performing Underlying Return)
In this scenario, you will suffer a percentage loss
on your principal amount equal to the underlying return of the least performing underlying asset, regardless of the underlying return
of any other underlying asset and, in extreme situations, you could lose all of your investment in the Securities.
|
|
Underlying Return
|
With respect to each underlying asset, the quotient, expressed
as a percentage, of the following formula:
Final Level − Initial Level
Initial Level
|
|
Least Performing Underlying Asset
|
The underlying asset with the lowest underlying return as compared to any other underlying asset
|
|
Least Performing Underlying Return
|
The underlying return of the least performing underlying asset
|
|
Initial Level(1)
|
With respect to each underlying asset, its closing level on the trade date, as indicated on the cover hereof
|
|
Final Level(1)
|
With respect to each underlying asset, its closing level on the final valuation date.
|
|
Downside Threshold(1)
|
A specified level of each underlying asset that is less than its initial level, based on a percentage of its initial level as indicated on the cover hereof.
|
|
Trading Day
|
With respect to an underlying asset, as specified in the product prospectus supplement under “General Terms of the Notes — Special Calculation Provisions — Trading Day”.
|
|
Tax Redemption
|
Notwithstanding anything to the contrary in the accompanying product prospectus supplement, the provision set forth under “General Terms of the Notes — Payment of Additional Amounts” and “General Terms of the Notes — Tax Redemption” shall not apply to the Securities.
|
|
Canadian Bail-in
|
The Securities are not bail-inable debt securities under the CDIC Act.
|
|
Terms Incorporated
|
All
of the terms appearing above the item under the caption “General Terms of the Notes” beginning on page PS-15 in the accompanying
product prospectus supplement, as modified by this pricing supplement, and for purposes of the foregoing, references herein to “underlying
asset”, “underlying constituents”, “underlying return” and “downside threshold” mean “reference
asset”, “reference asset constituents”, “percentage change” and “barrier level”, respectively,
each as defined in the accompanying
|
|
|
product prospectus supplement. In addition to those terms, the following two sentences are also
so incorporated into the master note: BNS confirms that it fully understands and is able to calculate the effective annual rate of
interest applicable to the Securities based on the methodology for calculating per annum rates provided for in the Securities. BNS
irrevocably agrees not to plead or assert Section 4 of the Interest Act (Canada), whether by way of defense or otherwise, in any
proceeding relating to the Securities.
|
(1)As
determined by the calculation agent and as may be adjusted as described under “General Terms of the Notes — Unavailability
of the Level of the Reference Asset on a Valuation Date”, as described in the accompanying product prospectus supplement. For the
avoidance of doubt, if a market disruption event occurs on the final valuation date with respect to one or more reference assets, the
final valuation date will be postponed in the same manner as if the Securities were linked to a basket of the underlying assets, as described
under “General Terms of the Notes—Market Disruption Events” in the accompanying product prospectus supplement.
Investment
Timeline
|
Trade Date
|
|
The initial level of each underlying asset is observed and the final terms of the Securities are set.
|
|
¯
|
|
|
|
Maturity Date
|
|
The final level of each underlying asset is observed on the final
valuation date, the underlying return of each underlying asset is calculated and the least performing underlying return is determined.
If the least performing underlying return is positive,
BNS will pay you an amount in cash per Security equal to:
$10 × (1 + Least Performing Underlying Return x Upside
Gearing)
If the least performing underlying return is zero or negative
and the final level of the least performing underlying asset is equal to or greater than its downside threshold, BNS will pay you
an amount in cash per Security equal to:
Principal Amount of $10
If the least performing underlying return is negative
and the final level of the least performing underlying asset is less than its downside threshold, BNS will pay you an amount in cash
per Security that is less than your principal amount, if anything, equal to:
$10 × (1 + Least Performing Underlying Return)
In this scenario, you will suffer a percentage loss
on your principal amount equal to the underlying return of the least performing underlying asset, regardless of the underlying return
of any other underlying asset and, in extreme situations, you could lose all of your investment in the Securities.
|
Investing in the Securities involves significant risks.
You may lose a significant portion or all of your investment in the Securities. Specifically, if the final level of any underlying asset
is less than its downside threshold, you will lose a percentage of your principal amount equal to the least performing underlying return
and in extreme situations, you could lose your entire investment. You will be exposed to the individual market risk of each underlying
asset on the final valuation date and any decline in the level of one underlying asset may negatively affect your return and will not
be offset or mitigated by a lesser decline or any potential increase in the level of any other underlying asset. Any payment on the Securities,
including any repayment of principal, is subject to the creditworthiness of BNS. If BNS were to default on its payment obligations, you
may not receive any amounts owed to you under the Securities and you could lose your entire investment in the Securities.
Key Risks
An investment in the Securities involves significant risks.
Investing in the Securities is not equivalent to investing in any underlying asset. Some of the key risks that apply to the Securities
are summarized below, but we urge you to read the more detailed explanation of risks relating to the Securities under “Additional
Risk Factors Specific to the Notes” of the accompanying product prospectus supplement and “Risk Factors” of the accompanying
prospectus supplement and of the accompanying prospectus. We also urge you to consult your investment, legal, tax, accounting and other
advisors concerning an investment in the Securities in light of your particular circumstances.
Risks Relating to Return Characteristics
|
|
¨
|
Risk
of loss at maturity — The Securities differ from ordinary debt securities in that
BNS will not necessarily repay the principal amount of the Securities. BNS will pay you the
principal amount of your Securities in cash at maturity only if the final level of the least
performing underlying asset is equal to or greater than its downside threshold. If the least
performing underlying return is negative and the final level of the least performing underlying
asset is less than its downside threshold, you will lose a percentage of your principal amount
equal to the least performing underlying return and, in extreme situations, you could lose
your entire investment in the Securities.
|
|
|
¨
|
The
contingent repayment of principal applies only at maturity — You should be willing
to hold your Securities to maturity. The stated payout by the issuer is available only if
you hold your Securities to maturity. If you are able to sell your Securities prior to maturity
in the secondary market, you may have to sell them at a loss relative to your investment
even if the then-current level of each underlying asset is equal to or greater than its downside
threshold.
|
|
|
¨
|
The
upside gearing applies only at maturity — You should be willing to hold your Securities
to maturity. If you are able to sell your Securities prior to maturity in the secondary market,
the price you receive will likely not reflect the full economic value of the upside gearing
and the percentage return you realize may be less than the then-current least performing
underlying return multiplied by the upside gearing, even if such return is positive. You
can receive the full benefit of the upside gearing only if you hold your Securities to maturity.
|
|
|
¨
|
No
interest payments — BNS will not pay any interest with respect to the Securities.
|
|
|
¨
|
You
are exposed to the individual market risk of each underlying asset — Your return
on the Securities will be contingent upon the performance of each underlying asset. Unlike
an instrument with a return linked solely to a basket of indices, common stocks or other
underlying securities, in which risk is mitigated and diversified among all of the components
of the basket, you will be exposed equally to the risks related to each underlying asset.
Poor performance by any underlying asset over the term of the Securities will negatively
affect your return and will not be offset or mitigated by a positive performance by any other
underlying asset. For instance, you may receive a negative return equal to the least performing
underlying return if the final level of one underlying asset is less than its downside threshold,
even if the underlying return of the other underlying asset is positive or has not declined
as much. Accordingly, your investment is subject to the individual market risk of each underlying
asset between the trade date and the final valuation date.
|
|
|
¨
|
Because
the Securities are linked to the least performing underlying asset, you are exposed to a
greater risk of losing a significant portion or all of your investment at maturity than if
the Securities were linked to a single underlying asset — The risk that you will
lose a significant portion or all of your investment in the Securities is greater if you
invest in the Securities than the risk of investing in substantially similar securities that
are linked to the performance of only one underlying asset. With more underlying assets,
it is more likely that the final level of any underlying asset will be less than its downside
threshold than if the Securities were linked to a single underlying asset.
|
|
|
|
In addition, the lower the correlation is between
the performance of a pair of underlying assets, the more likely it is that one of the underlying
assets will decline in value to a final level that is less than its downside threshold. Although
the correlation of the underlying assets’ performance may change over the term of the
Securities, the economic terms of the Securities, including the downside thresholds and upside
gearing, are determined, in part, based on the correlation of the underlying assets’
performance calculated using our internal models at the time when the terms of the Securities
are finalized. All things being equal, lower downside thresholds or a higher upside gearing
are generally associated with lower correlation of the underlying assets. Therefore, if the
performance of a pair of underlying assets is not correlated to each other or is negatively
correlated, the risk that the final level of any underlying asset is less than its downside
threshold is even greater despite lower downside thresholds or a higher upside gearing. Therefore,
it is more likely that you will lose a significant portion or all of your investment at maturity
than would have been the case had the Securities been linked to only one underlying asset.
|
|
|
¨
|
Greater
expected volatility generally indicates an increased risk of loss at maturity —
“Volatility” refers to the frequency and magnitude of changes in the level of
the underlying assets. The greater the expected volatility of the underlying assets as of
the trade date, the greater the expectation is as of that date that the final level of any
underlying asset could be less than its downside threshold and, as a consequence, indicates
an increased risk of loss. However, the underlying assets’ volatility can change significantly
over the term of the Securities, and relatively lower downside thresholds may not necessarily
indicate that the Securities have a greater likelihood of a return of principal at maturity.
You should be willing to accept the downside market risk of each underlying asset and the
potential to lose a significant portion or all of your investment in the Securities.
|
|
|
¨
|
Owning
the Securities is not the same as owning the underlying constituents — The return
on your Securities may not reflect the return you would realize if you actually owned the
underlying constituents. The Securities are linked to more than one underlying asset and
the return you receive is based on the least performing underlying asset, whereas with a
direct investment in the underlying constituents, poor performance in one or more underlying
constituent could be offset or mitigated by comparably better performance of the other underlying
constituents. Further, you will not receive or be entitled to receive any dividend payments
or other distributions during the term of the Securities, and any such dividends or distributions
will not be factored into the calculation of the payment at maturity on your Securities.
In addition, as an owner of the Securities, you will not have voting rights or any other
rights that a holder of the underlying constituents may have.
|
Risks Relating to Characteristics of the Underlying
Assets
|
|
¨
|
Market
risk — The return on the Securities, which may be negative, is directly linked
to the performance of the underlying assets and indirectly linked to the performance of the
underlying constituents, and will depend on whether, and the extent to which, the least performing
underlying return is positive or negative. The level of each underlying asset can rise or
fall sharply due to factors specific to such underlying asset, its underlying constituents
and their issuers (each, an “underlying constituent issuer”), such as stock price
volatility, earnings, financial conditions, corporate, industry and regulatory developments,
management changes and decisions and other events, as well as general market factors, such
as general stock market or commodity market volatility and levels, interest rates and economic
and political conditions. Recently, the coronavirus infection has caused volatility in the
global financial markets and a slowdown in the global economy. Coronavirus or any other communicable
disease or infection may adversely affect the underlying constituent issuers and, therefore,
the underlying assets. You, as an investor in the Securities, should conduct your own investigation
into the underlying assets and underlying constituents.
|
|
|
¨
|
There
can be no assurance that the investment view implicit in the Securities will be successful
— It is impossible to predict whether and the extent to which the level of each
underlying asset will rise or fall and, therefore, there can be no assurance that the final
level of each underlying asset will be equal to or greater than its initial level or downside
threshold. The final level of each underlying asset will be influenced by complex and interrelated
political, economic, financial and other factors specific to such underlying asset and its
underlying constituents. You should be willing to accept the risks of owning equities in
general and the underlying constituents in particular, and the risk of losing a significant
portion or all of your investment.
|
|
|
¨
|
The
Securities are subject to small-capitalization stock risks — The Securities are
subject to risks associated with small-capitalization companies because the Russell 2000®
Index is comprised of stocks of companies that are considered small-capitalization
companies. These companies often have greater stock price volatility, lower trading volume
and less liquidity than large-capitalization companies and therefore the Russell 2000®
Index may be more volatile than an index in which a greater percentage of its underlying
constituents are issued by large-capitalization companies. Stock prices of small-capitalization
companies are also more vulnerable than those of large-capitalization companies to adverse
business and economic developments, and the stocks of small-capitalization companies may
be thinly traded. In addition, small-capitalization companies are typically less stable financially
than large-capitalization companies and may depend on a small number of key personnel, making
them more vulnerable to loss of personnel. Small-capitalization companies are often given
less analyst coverage and may be in early, and less predictable, periods of their corporate
existences. Such companies tend to have smaller revenues, less diverse product lines, smaller
shares of their product or service markets, fewer financial resources and less competitive
strengths than large-capitalization companies and are more susceptible to adverse developments
related to their products.
|
|
|
¨
|
The
underlying assets reflect price return, not total return — The return on your Securities
is based on the performance of the underlying assets, each of which reflects the changes
in the market prices of its underlying constituents. None of the underlying assets are a
“total return” index or strategy, which, in addition to reflecting those price
returns, would also reflect any dividends paid on the underlying constituents. The return
on your Securities will not include such a total return feature or dividend component.
|
|
|
¨
|
Changes
affecting an underlying asset could have an adverse effect on the market value of, and any
amount payable on, the Securities — The policies of the sponsors of the underlying
assets (each, an “index sponsor”, and together, the “index sponsors”)
as specified under “Information About the Underlying Assets”, concerning additions,
deletions and substitutions of their underlying constituents and the manner in which the
index sponsors take account of certain changes affecting those underlying constituents may
adversely affect the level of the underlying assets. The policies of an index sponsor with
respect to the calculation of an underlying asset could also adversely affect the level of
such underlying asset. The index sponsors may discontinue or suspend calculation or dissemination
of the underlying assets. Any such actions could have an adverse effect on the market value
of, and any amount payable on, the Securities.
|
|
|
¨
|
BNS
and the Agents cannot control actions by the index sponsors or any underlying constituent
issuer and none of the index sponsors or any other underlying constituent issuer have any
obligation to consider your interests — None of BNS, UBS or our or their respective
affiliates are affiliated with the index sponsors or have any ability to control or predict
its actions, including any errors in or discontinuation of public disclosure regarding methods
or policies relating to the calculation of the underlying assets. In addition, none of BNS,
UBS or our or their respective affiliates are affiliated with any underlying constituent
issuer or have any ability to control or predict their actions or their public disclosure
of information, whether contained in SEC filings or otherwise. None of the index sponsors
or any other underlying constituent issuer are involved in the Securities offering in any
way and none have any obligation to consider your interest as an owner of the Securities
in taking any actions that might affect the market value of, and any amount payable on, your
Securities.
|
Estimated Value Considerations
|
|
¨
|
BNS’
initial estimated value of the Securities at the time of pricing (when the terms of your
Securities were set on the trade date) is lower than the issue price of the Securities
— BNS’ initial estimated value of the Securities is only an estimate. The issue
price of the Securities exceeds BNS’ initial estimated value. The difference between
the issue price of the Securities and BNS’ initial estimated value reflects costs associated
with selling and structuring the Securities, as well as hedging its obligations under the
Securities with SCUSA or another affiliate. Therefore, the economic terms of the Securities
are less favorable to you than they would have been if these expenses not been paid or had
been lower.
|
|
|
¨
|
Neither
BNS’ nor SCUSA’s estimated value of the Securities at any time is determined
by reference to credit spreads or the borrowing rate BNS would pay for its conventional fixed-rate
debt securities — BNS’ initial estimated value of the Securities and SCUSA’s
estimated value of the Securities at any time are determined by reference to BNS’ internal
funding rate. The internal funding rate used in the determination of the estimated value
of the Securities generally represents a discount from the credit spreads for BNS’
conventional fixed-rate debt securities and the borrowing rate BNS would pay for its conventional
fixed-rate debt securities. This discount is based on, among other things, BNS’ view
of the funding value of the Securities as well as the higher issuance, operational and ongoing
liability management costs of the Securities in comparison to those costs for BNS’
conventional fixed-rate debt. If the interest rate implied by the credit spreads for BNS’
conventional fixed-rate debt securities, or the borrowing rate BNS would pay for its conventional
fixed-rate debt securities were to be used, BNS would expect the economic terms of the Securities
to be more favorable to you. Consequently, the use of an internal funding rate for the Securities
increases the estimated value of the Securities at any time and has an adverse effect on
the economic terms of the Securities.
|
|
|
¨
|
BNS’
initial estimated value of the Securities does not represent future values of the Securities
and may differ from others’ (including SCUSA’s) estimates — BNS’
initial estimated value of the Securities was determined by reference to its internal pricing
models when the terms of the Securities were set. These pricing models consider certain factors,
such as BNS’ internal funding rate on the trade date, the expected term of the Securities,
market conditions and other relevant factors existing at that time, and BNS’ assumptions
about market parameters, which can include volatility of the underlying assets, correlation
of the underlying assets, dividend rates, interest rates and other factors. Different pricing
models and assumptions (including the pricing models and assumptions used by SCUSA) could
provide valuations for the Securities that are different, and perhaps materially lower, from
BNS’ initial estimated value. Therefore, the price at which SCUSA would buy or sell
your Securities (if SCUSA makes a market, which it is not obligated to do) may be materially
lower than BNS’ initial estimated value. In addition, market conditions and other relevant
factors in the future may change, and any assumptions may prove to be incorrect.
|
Risks Relating to Liquidity and Secondary Market Price
Considerations
|
|
¨
|
The
Securities have limited liquidity — The Securities will not be listed on any securities
exchange or automated quotation system. Therefore, there may be little or no secondary market
for the Securities. SCUSA and any other affiliates of BNS intend, but are not required to,
make a market in the Securities. Even if there is a secondary market, it may not provide
enough liquidity to allow you to trade or sell the Securities easily. Because we do not expect
that other broker-dealers will participate in the secondary market for the Securities, the
price at which you may be able to trade your Securities is likely to depend on the price,
if any, at which SCUSA is willing to purchase the Securities from you. If at any time SCUSA
does not make a market in the Securities, it is likely that there would be no secondary market
for the Securities. Accordingly, you should be willing to hold your Securities to maturity.
|
|
|
¨
|
The
price at which SCUSA would buy or sell the Securities (if SCUSA makes a market, which it
is not obligated to do) will be based on SCUSA’s estimated value of the Securities
and may be greater than BNS’ valuation of the Securities at that time, greater than
any other secondary market prices provided by unaffiliated dealers (if any) and, depending
on your broker, greater than the valuation provided on your customer account statements —
SCUSA’s estimated value of the Securities is determined by reference to its pricing
models and takes into account BNS’ internal funding rate. The price at which SCUSA
would initially buy or sell the Securities in the secondary market (if SCUSA makes a market,
which it is not obligated to do) may exceed (i) SCUSA’s estimated value of the Securities
at the time of pricing, (ii) any secondary market prices provided by unaffiliated dealers,
potentially including UBS, and (ii) depending on your broker, the valuation provided on your
customer account statement. The price that SCUSA may initially offer to buy such Securities
following issuance will exceed the valuations indicated by its internal pricing models due
to the inclusion for a limited period of time of the aggregate value of the costs associated
with structuring and selling the Securities, including the underwriting discount, hedging
costs, issuance costs and theoretical projected trading profit. The portion of such amounts
included in any secondary market price will decline to zero on a straight line basis over
a period ending no later than the date specified under “Supplemental Plan of Distribution
(Conflicts of Interest); Secondary Markets (if any).” Thereafter, if SCUSA buys or
sells the Securities it will do so at prices that reflect the estimated value determined
by reference to SCUSA’s pricing models at that time. The price at which SCUSA will
buy or sell the Securities at any time also will reflect its then current bid and ask spread
for similar sized trades of structured notes. The temporary positive differential relative
to SCUSA’s internal pricing models arises from requests from and arrangements made
by BNS and the Agents. As described above, SCUSA and its affiliates are not required to make
a market for the Securities and may stop making a market at any time. SCUSA reflects this
temporary positive differential on its customer account statements. Investors should inquire
as to the valuation provided on customer account statements provided by unaffiliated dealers,
including UBS.
|
|
|
|
SCUSA’s
pricing models consider certain variables, including principally BNS’ internal funding
rate, interest rates (forecasted, current and historical rates), volatility of the underlying
assets, correlation of the underlying assets, price-sensitivity analysis and the time to
maturity of the Securities. These pricing models are proprietary and rely in part on certain
assumptions about future events, which may prove to be incorrect. As a result, the actual
value you would receive if you sold your Securities in the secondary market, if any, to others
may differ, perhaps materially, from the estimated value of the Securities determined by
reference to SCUSA’s models, taking into account BNS’ internal funding rate,
due to, among other things, any differences in pricing models or assumptions used by others.
If SCUSA calculated its estimated value of the Securities by reference to BNS’ credit
spreads or the borrowing rate BNS would pay for its conventional fixed-rate debt securities
(as opposed to BNS’ internal funding rate), the price at which SCUSA would buy or sell
the Securities (if SCUSA makes a market, which it is not obligated to do) could be significantly
lower.
|
|
|
|
In addition to the factors discussed
above, the value and quoted price of the Securities at any time will reflect many factors and cannot be predicted. If SCUSA makes a market
in the Securities, the price quoted by SCUSA would reflect any changes in market conditions and other relevant factors, including any
deterioration in BNS’ creditworthiness or perceived creditworthiness. These changes may adversely affect the value of the Securities,
including the price you may receive for the Securities in any market making transaction. To the extent that SCUSA makes a market in the
Securities, the quoted price will reflect the estimated value determined by reference to SCUSA’s pricing models at that time, plus
or minus SCUSA’s then current bid and ask spread for similar sized trades of structured notes (and subject to the declining excess
amount described above). Furthermore, if you sell your Securities, you will likely be charged a commission for secondary market transactions,
or the price will likely reflect a dealer discount. This commission or discount will further reduce the proceeds you would receive for
your Securities in a secondary market sale.
|
|
|
¨
|
The
price of the Securities prior to maturity will depend on a number of factors and may be substantially
less than the principal amount — Because structured notes, including the Securities,
can be thought of as having a debt component and a derivative component, factors that influence
the values of debt instruments and options and other derivatives will also affect the terms
and features of the Securities at issuance and the market price of the Securities prior to
maturity. Some of these factors include, but are not limited to: (i) actual or anticipated
changes in the level of the underlying assets over the full term of the Securities, (ii)
volatility of the levels of the underlying assets and the prices of the underlying constituents
and the market's perception of future volatility of the foregoing, (iii) the correlation
of the underlying assets and the market’s perception of future correlation of the underlying
assets, (iv) changes in interest rates generally, (v) any actual or anticipated changes in
our credit ratings or credit spreads, (vi) dividend yields on the underlying constituents
and (vii) time remaining to maturity. In particular, because the provisions of the Securities
relating to the payment at maturity behave like options, the value of the Securities will
vary in ways which are non-linear and may not be intuitive.
|
|
|
|
Depending on the actual or anticipated
level of the underlying assets and other relevant factors, the market value of the Securities may decrease and you may receive substantially
less than the principal amount if you sell your Securities prior to maturity regardless of the level of the underlying assets at such
time.
|
Risks Relating to Hedging Activities and Conflicts of
Interest
|
|
¨
|
Hedging
activities by BNS and SCUSA may negatively impact investors in the Securities and cause our
respective interests and those of our clients and counterparties to be contrary to those
of investors in the Securities — We, SCUSA or one or more of our other affiliates
has hedged or expects to hedge our obligations under the Securities. Such hedging transactions
may include entering into swap or similar agreements, purchasing shares of the underlying
constituents and/or purchasing futures, options and/or other instruments linked to the underlying
assets and/or one or more of the underlying constituents. We, SCUSA or one or more of our
or their respective affiliates also expects to adjust the hedge by, among other things, purchasing
or selling any of the foregoing, and perhaps other instruments linked to the underlying assets
and/or one or more of the underlying constituents, at any time and from time to time, and
to unwind the hedge by selling any of the foregoing on or before the final valuation date.
We, SCUSA or one or more of our or their respective affiliates may also enter into, adjust
and unwind hedging transactions relating to other index-linked Securities whose returns are
linked to changes in the level of the underlying assets and/or one or more of the underlying
constituents. Any of these hedging activities may adversely affect the level of the underlying
assets — directly or indirectly by affecting the price of the underlying constituents
— and therefore the market value of the Securities and the amount you will receive,
if any, on the Securities.
|
|
|
|
You should expect that these transactions
will cause BNS, SCUSA or our other affiliates, or our or their respective clients or counterparties, to have economic interests and incentives
that do not align with, and that may be directly contrary to, those of an investor in the Securities. None of BNS, SCUSA or any of our
other affiliates will have any obligation to take, refrain from taking or cease taking any action with respect to these transactions based
on the potential effect on an investor in the Securities, and any of the foregoing may receive substantial returns with respect to these
hedging activities while the value of, and return on, the Securities declines.
|
|
|
¨
|
We, the Agents and our or their respective affiliates regularly provide services to, or otherwise have
business relationships with, a broad client base, which has included and may include us and the underlying constituent issuers and the
market activities by us, the Agents or our or their respective affiliates for our or their own respective accounts or for our or their
respective clients could negatively impact investors in the Securities — We, the Agents and our or their respective affiliates
regularly provide a wide range of financial services, including financial advisory, investment advisory and transactional services to
a substantial and diversified client base. As such, we each may act as an investor, investment banker, research provider, investment manager,
investment advisor, market maker, trader, prime broker or lender. In those and other capacities, we, the Agents and/or our or
|
|
|
|
their respective affiliates purchase,
sell or hold a broad array of investments, actively trade securities (including the Securities or other securities that we have issued),
the underlying constituents, derivatives, loans, credit default swaps, indices, baskets and other financial instruments and products for
our or their own respective accounts or for the accounts of our or their respective customers, and we will have other direct or indirect
interests, in those securities and in other markets that may not be consistent with your interests and may adversely affect the level
of the underlying assets and/or the value of the Securities. You should assume that we or they will, at present or in the future, provide
such services or otherwise engage in transactions with, among others, us and the underlying constituent issuers, or transact in securities
or instruments or with parties that are directly or indirectly related to these entities. These services could include making loans to
or equity investments in those companies, providing financial advisory or other investment banking services, or issuing research reports.
Any of these financial market activities may, individually or in the aggregate, have an adverse effect on the level of the underlying
assets and the market for your Securities, and you should expect that our interests and those of the Agents and/or our or their respective
affiliates, clients or counterparties, will at times be adverse to those of investors in the Securities.
|
|
|
|
You should expect that we, the Agents,
and our or their respective affiliates, in providing these services, engaging in such transactions, or acting for our or their own respective
accounts, may take actions that have direct or indirect effects on the Securities or other securities that we may issue, the underlying
constituents other securities or instruments similar to or linked to the foregoing, and that such actions could be adverse to the interests
of investors in the Securities. In addition, in connection with these activities, certain personnel within us, the Agents or our or their
respective affiliates may have access to confidential material non-public information about these parties that would not be disclosed
to investors in the Securities.
|
|
|
|
We, the Agents and our or their
respective affiliates regularly offer a wide array of securities, financial instruments and other products into the marketplace, including
existing or new products that are similar to the Securities or other securities that we may issue, the underlying constituents or other
securities or instruments similar to or linked to the foregoing. Investors in the Securities should expect that we, the Agents and our
or their respective affiliates offer securities, financial instruments, and other products that may compete with the Securities for liquidity
or otherwise.
|
|
|
¨
|
Potential
BNS impact on price — Trading or transactions by BNS, the Agents or our or their
respective affiliates in the underlying constituents, listed and/or over-the-counter options,
futures or other instruments with returns linked to the performance of the underlying assets
or any underlying constituents may adversely affect the performance of the applicable underlying
asset or applicable underlying constituent and, therefore, the market value of, and any amount
payable on, the Securities.
|
|
|
¨
|
The
calculation agent will have significant discretion with respect to the Securities, which
may be exercised in a manner that is adverse to your interests — The calculation
agent will be an affiliate of BNS. The calculation agent can postpone the determination of
the final level of the least performing underlying asset on the final valuation date if a
market disruption event occurs and is continuing on that day.
|
|
|
¨
|
Potentially
inconsistent research, opinions or recommendations by BNS — BNS, the Agents and
our or their respective affiliates may publish research from time to time on financial markets
and other matters that may influence the value of the Securities, or express opinions or
provide recommendations that are inconsistent with purchasing or holding the Securities.
Any research, opinions or recommendations expressed by BNS, the Agents or our or their respective
affiliates may not be consistent with each other and may be modified from time to time without
notice. Investors should make their own independent investigation of the merits of investing
in the Securities and the underlying assets.
|
Risks Relating to General Credit Characteristics
|
|
¨
|
Credit
risk of BNS — The Securities are senior unsecured debt obligations of BNS and are
not, either directly or indirectly, an obligation of any third party. Any payment to be made
on the Securities, including any repayment of principal at maturity, depends on the ability
of BNS to satisfy its obligations as they come due. As a result, BNS’ actual and perceived
creditworthiness may affect the market value of the Securities. If BNS were to default on
its obligations, you may not receive any amounts owed to you under the terms of the Securities
and you could lose your entire investment in the Securities.
|
|
|
¨
|
The
COVID-19 virus may have an adverse impact on BNS — On March 11, 2020, the World
Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19,
a global pandemic. Governments in affected areas have imposed a number of measures designed
to contain the outbreak, including business closures, travel restrictions, quarantines and
cancellations of gatherings and events. The spread of COVID-19 has had disruptive effects
in countries in which BNS operates and the global economy more widely, as well as causing
increased volatility and declines in financial markets. COVID-19 has materially impacted
and continues to materially impact the markets in which BNS operates. If the pandemic is
prolonged, or further diseases emerge that give rise to similar effects, the adverse impact
on the global economy could deepen and result in further declines in financial markets. A
substantial amount of BNS’ business involves making loans or otherwise committing resources
to specific companies, industries or countries. The COVID-19 pandemic’s impact on such
borrowers, industries and countries could have a material adverse effect on BNS’ financial
results, businesses, financial condition or liquidity. The COVID-19 pandemic may also result
in disruption to BNS’ key suppliers of goods and services and result in increased unavailability
of staff adversely impacting the quality and continuity of service to customers and the reputation
of BNS. As a result, the business, results of operations, corporate reputation and financial
condition of BNS could be adversely impacted for a substantial period of time.
|
|
|
¨
|
BNS
is subject to the resolution authority under the CDIC Act — Although the Securities
are not bail-inable debt securities under the CDIC Act, as described elsewhere in this pricing
supplement, BNS remains subject generally to Canadian bank resolution powers under the CDIC
Act. Under such powers, the Canada Deposit Insurance Corporation may in certain circumstances
take actions that could negatively impact holders of the Securities and result in a loss
on your investment. See “Risk Factors — Risks Related to the Bank’s Debt
Securities” in the accompanying prospectus for more information.
|
Risks Relating to Canadian and U.S. Federal Income Taxation
|
|
¨
|
Uncertain
tax treatment — Significant aspects of the tax treatment of the Securities are
uncertain. You should consult your tax advisor about your tax situation. See “Material
Canadian Income Tax Consequences” and “What Are the Tax Consequences of the Securities?”
in this pricing supplement.
|
Hypothetical
Examples and Return Table of the Securities at Maturity
The below examples and table are based on hypothetical
terms. The actual terms are indicated on the cover hereof.
The examples and table below illustrate the Payment at Maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (amounts may have been rounded for ease
of analysis):
|
Term:
|
Approximately 5 years
|
|
Initial Level:
|
|
|
Underlying Asset A:
|
2,000.00
|
|
Underlying Asset B:
|
4,000.00
|
|
Downside Threshold:
|
|
|
Underlying Asset A:
|
1,500.00 (75.00% of its Initial Level)
|
|
Underlying Asset B:
|
3,000.00 (75.00% of its Initial Level)
|
|
Upside Gearing
|
1.29
|
|
Range of Least Performing Underlying Return:
|
-100% to 50%
|
Example 1: Underlying Asset B is the Least Performing
Underlying Asset and its Final Level is 4,800.00, resulting in a Least Performing Underlying Return of 20.00%.
Because the least performing underlying return is positive,
the payment at maturity per Security will be calculated as follows:
$10 × (1 + Least Performing Underlying Return x Upside
Gearing)
$10 × (1 + 20.00% × 1.29)
= $10 × (1 + 25.80%)
= $12.58 per Security (a 25.80% total return).
Example 2: Underlying Asset A is the Least Performing
Underlying Asset and its Final Level is 1,800.00, resulting in a Least Performing Underlying Return of -10%, and the Final Level of the
Least Performing Underlying Asset is equal to or greater than its Downside Threshold.
Because the least performing underlying return is negative
and the final level of the least performing underlying asset is equal to or greater than its downside threshold, the payment at maturity
per Security will be equal to the principal amount of $10 (a 0% total return).
Example 3: Underlying Asset B is the Least Performing
Underlying Asset and its Final Level is 1,600.00, resulting in a Least Performing Underlying Return of -60%, and the Final Level of the
Least Performing Underlying Asset is less than its Downside Threshold.
Because the least performing underlying return is negative
and the final level of the least performing underlying asset is less than its downside threshold, the payment at maturity per Security
will be less than the principal amount, if anything, calculated as follows:
$10 × (1 + Least Performing Underlying Return)
$10 × (1 + -60.00%)
= $10 × 0.4
= $4.00 per Security (a 60.00% loss).
In this scenario, you will suffer a percentage loss
on your principal amount equal to the underlying return of the least performing underlying asset, regardless of the underlying return
of any other underlying asset and, in extreme situations, you could lose your entire investment in the Securities.
|
Least Performing Underlying Asset
|
Payment and Return at Maturity
|
|
Least Performing Underlying Return
|
Payment at Maturity
|
Security Total Return at Maturity
|
|
50.00%
|
$16.450
|
64.50%
|
|
40.00%
|
$15.160
|
51.60%
|
|
30.00%
|
$13.870
|
38.70%
|
|
20.00%
|
$12.580
|
25.80%
|
|
15.00%
|
$11.935
|
19.35%
|
|
10.00%
|
$11.290
|
12.90%
|
|
5.00%
|
$10.645
|
6.45%
|
|
0.00%
|
$10.000
|
0.00%
|
|
-10.00%
|
$10.000
|
0.00%
|
|
-15.00%
|
$10.000
|
0.00%
|
|
-20.00%
|
$10.000
|
0.00%
|
|
-25.00%
|
$10.000
|
0.00%
|
|
-30.00%
|
$7.000
|
-30.00%
|
|
-40.00%
|
$6.000
|
-40.00%
|
|
-50.00%
|
$5.000
|
-50.00%
|
|
-60.00%
|
$4.000
|
-60.00%
|
|
-70.00%
|
$3.000
|
-70.00%
|
|
-80.00%
|
$2.000
|
-80.00%
|
|
-90.00%
|
$1.000
|
-90.00%
|
|
-100.00%
|
$0.000
|
-100.00%
|
We make no representation or warranty as to which of
the underlying assets will be the least performing underlying asset for the purposes of calculating your actual payment at maturity.
Information
About the Underlying Assets
All disclosures contained in this document regarding the
underlying assets is derived from publicly available information. BNS has not conducted any independent review or due diligence of any
publicly available information with respect to any such information. You should make your own investigation into the underlying assets.
Included on the following pages is a brief description of
each underlying asset. This information has been obtained from publicly available sources. Set forth below are graphs that illustrate
the past performance for each of the underlying assets for the period indicated. We obtained the past performance information set forth
below from Bloomberg Professional® service (“Bloomberg”) without independent verification. You should not take
the historical levels of the underlying assets as an indication of future performance.
Russell 2000® Index
All disclosures contained herein regarding the Russell 2000®
Index (which we refer to in this section as the “RTY”), including, without limitation, its make-up, method of calculation,
and changes in its components, have been derived from publicly available sources. The RTY was developed by Russell Investment Group (“Russell”)
before FTSE International Limited and Russell combined in 2015 to create FTSE Russell, which is wholly owned by London Stock Exchange
Group. The information reflects the policies of, and is subject to change by, FTSE Russell (or the “sponsor”). The sponsor,
which licenses the copyright and all other rights to the RTY, has no obligation to continue to publish, and may discontinue publication
of, the RTY. None of us, the calculation agent, or GS&Co. accepts any responsibility for the calculation, maintenance or publication
of the RTY or any successor index.
General
The RTY is sponsored by FTSE Russell and measures the composite
price performance of stocks of 2,053 companies in the U.S. equity market. It is generally considered to be a “small-cap” index.
Additional information, including information about its constituent stock, sector and country weightings, is available on the following
website: ftserussell.com/products/indices/russell-us. We are not incorporating by reference the website or any material it includes in
this pricing supplement or any document incorporated herein by reference.
Index sponsors may use very different standards for determining
sector designations. In addition, many companies operate in a number of sectors, but are listed in only one sector and the basis on which
that sector is selected may also differ. As a result, sector comparisons between indices with different index sponsors may reflect differences
in methodology as well as actual differences in the sector composition of the indices.) As of the close of business on September 18, 2020,
FTSE Russell transitioned from the Russell Global Sectors to the ICB.
The RTY includes approximately 2,000 of the smallest securities
that form the Russell 3000® Index. The Russell 3000® Index is comprised of the 3,000 largest U.S. companies,
or 98% based on market capitalization, of the investable U.S. equity market. The RTY is designed to track the performance of the small
capitalization segment of the U.S. equity market.
Selection of Constituent Stocks of the RTY
The RTY is a sub-index of the Russell 3000® Index.
To be eligible for inclusion in the Russell 3000® Index, and, consequently, the RTY, a company’s stocks must
be listed on the rank day in May of a given year (the timetable is announced each spring) and Russell must have access to documentation
verifying the company’s eligibility for inclusion. Eligible initial public offerings (“IPOs”) are added to Russell U.S.
Indices quarterly, based on total market capitalization rankings within the market-adjusted capitalization breaks established during the
most recent reconstitution. To be added to any Russell U.S. index during a quarter outside of reconstitution, IPOs must meet additional
eligibility criteria.
A company is included in the U.S. equity markets and is eligible
for inclusion in the Russell 3000® Index, and consequently, the RTY, if that company incorporates in the U.S., has
its headquarters in the U.S. and also trades with the highest liquidity in the U.S. If a company does not satisfy all of the above criteria,
it can still be included in the U.S. equity market if any one of the following home country indicators is in the United States: (i) country
of incorporation, (ii) country of headquarters and (iii) country in which the company trades with the highest liquidity (as defined by
a two-year average daily dollar trading volume from all exchanges within the country), and the primary location of that company’s
assets or its revenue, based on an average of two years of assets or revenues data, is also in the United States. In addition, if there
is insufficient information to assign a company to the U.S. equity markets based on its assets or revenue, the company may nonetheless
be assigned to the U.S. equity markets if the headquarters of the company is located in the United States or if the headquarters of the
company is located in certain “benefit-driven incorporation countries”, or “BDIs”, and that company’s most
liquid stock exchange is in the United States. The BDI countries are Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize,
Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Channel Islands, Cook Islands, Curaçao, Faroe Islands, Gibraltar, Guernsey,
Isle of Man, Jersey, Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint Maarten and Turks and Caicos Islands. A U.S.-listed
company is not eligible for inclusion within the U.S. equity market if it has been classified by the sponsor as a China N share on the
rank date of the index reconstitution. A company will be considered a China N share if the following criteria are satisfied: (i) the company
is incorporated outside of the People’s Republic of China, (ii) the company is listed on the NYSE, the NASDAQ or the NYSE American
(formerly the NYSE MKT), (iii) over 55% of the revenue or assets of the company are derived from the People’s Republic of China,
and (iv) the company is controlled by a mainland Chinese entity, company or individual (if the shareholder background cannot be determined
with publicly available information, the sponsor will consider whether the establishment and origin of the company are in mainland China
and whether the company is headquartered in mainland China). An existing China N Share which fails one or more of the following criteria
will cease to be classified as a China N share: (i) the company is no longer incorporated outside the People’s Republic of China,
(ii) the company is no longer listed on the NYSE, the NASDAQ exchange, or the NYSE American, (iii) the percentages of revenue and assets
derived from the People’s Republic of China have both fallen below 45 percent, or (iv) the company is acquired/a controlling stake
is held by a non-Mainland Chinese state entity, company or individual. Only asset and revenue data from the most recent annual report
is considered when evaluating whether a company should be classified a China N share (i.e., there will be no two year averaging). ADRs
and ADSs are not eligible for inclusion in the RTY.
In addition, all securities eligible for inclusion in the Russell
3000® Index, and consequently, the RTY, must trade on an eligible exchange (CBOE (formerly BATS), NYSE, NYSE American
(formerly NYSE MKT), NYSE Arca and NASDAQ).
Exclusions from the RTY
The sponsor specifically excludes the following companies and
securities from the RTY: (i) preferred and convertible preferred stock, redeemable shares, participating preferred stock, warrants,
rights, depositary receipts, installment receipts and trust receipts; (ii) royalty trusts, U.S. limited liability companies, closed-end
investment companies, companies that are required to report Acquired Fund Fees and Expenses (as defined by the SEC), including business
development companies, blank check companies, special-purpose acquisition companies and limited partnerships; (iii) companies with
a total market capitalization less than $30 million; (iv) companies with only a small portion of their shares available in the marketplace
(companies with less than an absolute 5% of shares available); (v) bulletin board, pink sheets or over-the-counter traded securities,
including securities for which prices are displayed on the FINRA ADF; (vi) real estate investment trusts and publicly traded partnerships
that generate, or have historically generated, unrelated business taxable income and have not taken steps to block their unrelated business
taxable income to equity holders; and (vii) companies with 5% or less of the company’s voting rights in the hands of unrestricted
shareholders (existing constituents that do not currently have more than 5% of the company’s voting rights in the hands of unrestricted
shareholders have until the September 2022 review to meet this requirement).
Initial List of Eligible Securities
The primary criterion the sponsor uses to determine the initial
list of securities eligible for the Russell 3000® Index and, consequently, the RTY, is total market capitalization,
which is calculated by multiplying the total outstanding shares for a company by the market price as of the rank day for those securities
being considered at annual reconstitution. IPOs may be added between constitutions as noted below. All common stock share classes are
combined in determining a company’s total shares outstanding. If multiple share classes have been combined, the number of total
shares outstanding will be multiplied by the primary exchange close price and used to determine the company’s total market capitalization.
In cases where the common stock share classes act independently of each other (e.g., tracking stocks), each class is considered for inclusion
separately. Stocks must have a closing price at or above $1.00 on their primary exchange or an eligible secondary exchange on the last
trading day of May of each year to be eligible for inclusion in the RTY. In order to reduce unnecessary turnover, if an existing member’s
closing price is less than $1.00 on the rank day in May, it will be considered eligible if the average of the daily closing prices from
their primary exchange during the 30 days prior to the rank day is equal to or greater than $1.00. If an existing member does not trade
on the rank day, it must price at $1.00 or above on another eligible U.S. exchange to remain eligible.
Multiple Share Classes
If an eligible company trades under multiple share classes
or if a company distributes shares of an additional share class to its existing shareholders through a mandatory corporate action, each
share class will be reviewed independently for inclusion. Share classes in addition to the primary vehicle (the pricing vehicle) that
have a total market capitalization larger than $30 million, an average daily dollar trading value that exceeds that of the global median,
and a float greater than 5% of shares available in the market place are eligible for inclusion.
The pricing vehicle will generally be designated as the share
class with the highest two-year trading volume as of the rank day. In the absence of two years’ worth of data, all available data
will be used for this calculation. If the difference between trading volumes for each share class is less than 20%, the share class with
the most available shares outstanding will be used as the pricing vehicle. At least 100 day trading volume is necessary to consider the
class as a pricing vehicle for existing members. New members will be analyzed on all available data, even if that data is for less than
100 days.
Annual Reconstitution
The RTY is reconstituted annually by the sponsor to reflect
changes in the marketplace. The list of companies is ranked based on total market capitalization on the last trading day in May, with
the actual reconstitution occurring on the final Friday of June each year, unless the final Friday in June is the 29th or 30th, in which
case reconstitution will occur on the preceding Friday. A full calendar for reconstitution is made available each spring.
A company’s total shares are multiplied by the primary
exchange close price of the pricing vehicle and used to determine the company’s total market capitalization for the purpose of ranking
of companies and determination of index membership. If no volume exists on the primary exchange on the rank day, the last trade price
from an eligible secondary exchange will be used where volume exists (using the lowest trade price above $1.00 if multiple secondary markets
exist). The company’s rank will be determined based on the cumulative market capitalization. As of the June 2016 reconstitution,
any share class not qualifying for eligibility independently will not be aggregated with the pricing vehicle within the available shares
calculation.
For mergers and spin-offs that are effective between the rank
day and the business day immediately before the index lock down takes effect ahead of the annual reconstitution in June, the market capitalizations
of the impacted securities are recalculated and membership is reevaluated as of the effective date of the corporate action. For corporate
events that occur during the reconstitution lock down period (which takes effect from the open on the first day of the lock down period
onwards, market capitalizations and memberships will not be reevaluated. Non index members that have been considered ineligible as of
rank day will not be reevaluated in the event of a subsequent corporate action that occurs between rank day and the reconstitution effective
date.
Index Calculation and Capitalization Adjustments
As a capitalization-weighted index, the RTY reflects changes
in the capitalization, or market value, of the index stocks relative to the capitalization on a base date. This discussion describes the
“price return” calculation of the RTY. The current RTY value is the compounded result of the cumulative daily (or monthly)
return percentages, where the starting value of the RTY is equal to the base value (100) and base date (December 31, 1978). Returns
between any two dates can then be derived by dividing the ending period index value (IV1) by the beginning period (IV0) index value, so
that the return equals [(IV1 / IV0) –1]*100.
Constituent stocks of the RTY are weighted in the RTY by their
free-float market capitalization, which is calculated by multiplying the primary closing price by the number of free-float shares. Free-float
shares are shares that are available to the public for purchase as determined by the sponsor. Adjustments to shares are reviewed quarterly
(including at reconstitution) and for major corporate actions such as mergers. Total shares and adjustments for available shares
are based on information recorded in SEC corporate filings.
The following are excluded from free float: shares directly
owned by state, regional, municipal and local governments (excluding shares held by independently managed pension schemes for governments);
shares held by sovereign wealth funds where each holding is 10% or greater of the total number of shares in issue; shares held by directors,
senior executives and managers of the company, and by their family and direct relations, and by companies with which they are affiliated;
shares held within employee share plans; shares held by public companies or by non-listed subsidiaries of public companies; shares held
by founders, promoters, former directors, founding venture capital and private equity firms, private companies and individuals (including
employees) where the holding is 10% or greater of the total number of shares in issue; all shares where the holder is subject to a lock-up
clause (for the duration of that clause, after which free float changes resulting from the expiry of a lock-up will be implemented at
the next quarterly review subject to the lock-up expiry date occurring on or prior to the share and float change information cut-off date);
shares held by an investor, investment company or an investment fund that is actively participating in the management of a company or
is holding shares for publicly announced strategic reasons, or has successfully placed a current member to the board of directors of a
company; and shares that are subject to ongoing contractual agreements (such as swaps) where they would ordinarily be treated as restricted. In
addition, while portfolio holdings such as pension funds, insurance funds or investment companies will generally not be considered as
restricted from free float, where a single portfolio holding is 30% or greater it will be regarded as strategic and therefore restricted
(and will remain restricted until the holding falls below 30%).
Corporate Actions Affecting the RTY
The sponsor adjusts the RTY on a daily basis in response to
certain corporate actions and events. Therefore, a company’s membership in the RTY and its weight in the RTY can be impacted by
these corporate actions. The adjustment is applied based on sources of public information, including press releases and SEC filings. Prior
to the completion of a corporate action or event, the sponsor estimates the effective date. The sponsor will then adjust the anticipated
effective date based on public information until the date is considered final. Depending on the time on a given day that an action is
determined to be final, the sponsor will generally either (1) apply the action before the open on the ex-date or (2) apply the
action after providing appropriate notice. If the sponsor has confirmed the completion of a corporate action, scheduled to become effective
subsequent to a rebalance, the event may be implemented in conjunction with the rebalance to limit turnover, provided appropriate notice
can be given. The sponsor applies the following methodology guidelines when adjusting the RTY in response to corporate actions and events:
“No Replacement” Rule — Securities
that are deleted from the RTY between reconstitution dates, for any reason (e.g., mergers, acquisitions or other similar corporate activity)
are not replaced. Thus, the number of securities in the RTY over the past year will fluctuate according to corporate activity.
Mergers and Acquisitions
Adjustments due to mergers and acquisitions are applied to
the RTY after the action is determined to be final. In the event that a constituent is being acquired for cash or is delisted subsequent
to an index review, such constituent will be removed from the RTY in conjunction with the index review, assuming that the action is determined
to be final and a minimum of two days’ notice can be provided.
Between constituents: When mergers and acquisitions take place
between companies that are both constituents of a Russell index for cash, the target company is deleted from the index at the last traded
price. When mergers and acquisitions take place between companies that are both constituents of a Russell index for stock, the target
company is deleted from the RTY and the shares of the acquiring stock are increased according to the offer terms. When mergers and acquisitions
take place between companies that are both constituents of a Russell index for cash or stock or a combination thereof, the target company
is deleted from the RTY and the shares of the acquiring company are simultaneously increased per the merger terms.
Between a constituent and a non-constituent: If the target
company is a member of the RTY, it is deleted from the RTY and the acquiring company will be included initially in the RTY provided it
is eligible in all other respects at the time of the merger, regardless of previous eligibility screenings. If the acquiring company is
deemed eligible it will be added to the RTY on the effective date and the opening price will be calculated using the offer terms. When
the target company is a FTSE Russell Universe member, the shares of the member acquiring company will be updated to reflect the merger.
Any share update will be made giving appropriate notice.
Given sufficient market hours after the confirmation of a merger
or acquisition, the sponsor effects the action after the close on the last day of trading of the target company, or at an appropriate
time once the transaction has been deemed to be final.
Rights Offerings — Rights offered to shareholders
are reflected in the RTY only if the subscription price of the rights is at a discount to the market price of the stock. Provided that
the sponsor has been alerted to the rights offer prior to the ex-date, it will adjust the price of the stock for the value of the rights
and increased shares according to the terms of the offering before the open on the ex-date.
Spin-offs— If the spin-off entity meets the eligibility
requirements for the RTY, the spin-off entity will be added to the RTY on the ex-date of the distribution. The spin-off entity will be
retained in the RTY until the next annual reconstitution, when it will be evaluated for inclusion. If the spin-off entity does not meet
the eligibility requirements for the RTY, the spin-off entity will be added to the RTY on the ex-date of the distribution. It will remain
in the RTY until listing and settlement and then deleted at market price with notice.
Initial Public Offerings — Eligible IPOs are added
to the RTY based on total market capitalization ranking within the market-adjusted capitalization breaks established at the most recent
annual reconstitution.
An IPO of additional share classes will be considered for eligibility
and must meet the same eligibility criteria for all other multiple share classes. If at the time of the IPO the additional share class
does not meet the eligibility criteria for separate index membership, it will not be added to the RTY and will subsequently be reviewed
for index membership during the next annual reconstitution.
Once IPO additions have been announced, an IPO may be added
to the RTY prior to the previously announced schedule, if a corporate action has deemed this to be appropriate and notice can be provided
(e.g. an index member automatically receives shares via a stock distribution into a projected IPO add).
Tender Offers — A company acquired as a result
of a tender offer is removed when (i) (a) offer acceptances reach 90%; (b) shareholders have validly tendered and the shares
have been irrevocably accepted for payment; and (c) all pertinent offer conditions have been reasonably met and the acquirer has not explicitly
stated that it does not intend to acquire the remaining shares; (ii) there is reason to believe that the remaining free float is
under 5% based on information available at the time; or (iii) following completion of the offer the acquirer has stated intent to finalize
the acquisition via a short-form merger, squeeze-out, top-up option or any other compulsory mechanism.
Where the conditions for index deletion are not met, the sponsor
may implement a free float change based on the reported acceptance results at the expiration of the initial, subsequent or final offer
period where (i) the minimum acceptance level as stipulated by the acquiror is met; (ii) shareholders have validly tendered and the shares
have been irrevocably accepted for payment; (iii) all pertinent offer conditions have been reasonably met and (iv) the change to the current
float factor is greater than 3%. The sponsor uses the published results of the offer to determine the new free float of the target company.
If no information is published in conjunction with the results from which the sponsor can determine which shareholders have and have not
tendered, the free float change will reflect the total shares now owned by the acquiring company. A minimum T+2 notice period of the change
is generally provided. Any subsequent disclosure on the updated shareholder structure will be reviewed during the quarterly review cycle.
If the offer includes a stock consideration, the acquiring company’s shares will be increased proportionate to the free float change
of the target company. If the target company’s free float change is greater than 3%, the associated change to the acquiring company’s
shares will be implemented regardless of size. Additionally, if the change to the target company is less than 3%, then no change will
be implemented to the target or the acquiring company at the time of the event, regardless of any change to the acquiring company’s
shares. The target company will then be deleted as a second-step, if the conditions for deletion are achieved at the expiration of a subsequent
offer period.
In the event that a tender offer results in an additional listed
and active “tendered” line prior to the tendered shares being accepted and exchanged for settlement, the sponsor will generally
evaluate the following factors to determine whether to switch to the tendered line: (i) the objective of the offer is to fully acquire
and delist the target company (and the sponsor is not aware of any obstacles designed to prevent this objective; e.g. there are no major
shareholders who have publicly disclosed that they will not be tendering); (ii) the offer is deemed to be successful (i.e. the minimum
acceptance threshold has been achieved); (iii) more than 50% of the shares subject to the offer have been tendered; (iv) there is an additional
tender offer period to provide a window for index users to tender into the tendered shares’ line; and (v) there are outstanding
regulatory or other substantive hurdles preventing the transaction completing immediately at the conclusion of the tender offer, with
the results not expected to be known for some time. Index implementation will generally occur immediately after the opening of the additional
offer period (with the provision of appropriate notice) – with an informative notice published announcing the change, to supplement
the information within the applicable tracker files. In the event that the tendered line is halted prior to index implementation, its
close price will be updated to reflect the deal terms until implementation. In the event that the prerequisites for deletion are not achieved
and the target company is retained within the index at a reduced weight, the tendered line will be removed at deal terms (if no active
market) with the ordinary line being re-added at a reduced weight at its last close price.
In exceptional circumstances, any review changes due to be
effective for the companies involved in a tender offer may be retracted if the sponsor becomes aware of a tender offer which is due to
complete on or around the effective date of such index review changes. Such exceptional circumstances may include undue price pressure
being placed on the companies involved, or if proceeding with the review changes would compromise the replicability of the index.
Delisted and Suspended Stocks — A stock will be
deleted as a constituent if it is delisted from all eligible exchanges. . A stock will be deleted if the sponsor becomes aware (in its
country of assigned nationality) that the stock has become bankrupt, has filed for bankruptcy protection, enters administration, is insolvent
or is liquidated, or where evidence of a change in circumstances makes it ineligible for index inclusion. If, however, the sponsor becomes
aware that a stock is suspended, treatment will be determined as follows:
|
|
·
|
if a constituent is declared bankrupt without any indication of compensation to shareholders, the last
traded price will be adjusted to zero value and the constituent will be removed from the RTY with notice (typically T+2 notice);
|
|
|
·
|
in all other cases, a constituent will continue to be included in the RTY for a period of up to 20 business
days at its last traded price;
|
|
|
·
|
if a constituent continues to be suspended at the end of that 20 business day period (the suspension period),
it will be subject to review. The sponsor will take into account the stated reasons for the suspension. These reasons may include announcements
made by the company regarding a pending acquisition or restructuring, and any stated intentions regarding a date for the resumption of
trading. If following review, a decision is taken to remove the constituent, the sponsor will provide notice of 20 business days (the
notice period) that it intends to remove the constituent, at zero value, at the conclusion of the notice period. If the security has not
resumed trading at the conclusion of the notice period, it will be removed with two days’ notice. If during the notice period further
details are disclosed as to the reason for a company’s suspension, those reasons (and any possible resumption of trade date) will
be taken into account when determining if the company should remain on notice;
|
|
|
·
|
if a suspended constituent resumes trading on or before the last business day of the notice period, the
deletion notice will be rescinded and the constituent will be retained in the Russell 2000® Index. However, where the constituent
resumes trading after the 40th business day of suspension, the constituent will continue to be removed from the RTY as previously
|
|
|
|
announced
but in these circumstance the deletion will be implemented at market value unless there are barriers that render a market value irreplicable.
In this event, the company will continue to be removed at zero;
|
|
|
·
|
if the notice period expires in the week preceding an index review, the company will be removed in conjunction
with the index review;
|
|
|
·
|
in certain limited circumstances where the index weight of the constituent is significant and the sponsor
determines that a market-related value can be established for the suspended constituent, for example because similar company securities
continue to trade, deletion may take place at the market-related value instead. In such circumstances, the sponsor will set out its rationale
for the proposed treatment of the constituent at the end of the suspension period. The company would then be removed at that value at
the end of the notice period;
|
|
|
·
|
if a constituent has been removed from the RTY and trading is subsequently restored, the constituent will
only be reconsidered for inclusion after a period of 12 months from its deletion. For the purposes of index eligibility it will be treated
as a new issue.
|
For example, if the sponsor becomes aware that a U.S. company
has filed for Chapter 7 bankruptcy, Chapter 11 bankruptcy protection or a liquidation plan, it will be removed from the RTY at the time
of filing. If a constituent is removed pursuant to this rule and is not trading, the sponsor will remove the stock at a nominal price
of $0.0001. If a price on an ineligible market (e.g. OTC) is available, the constituent may be removed using this price.
A stock which has been deleted from the RTY as a result of
bankruptcy protection or insolvency will only be reconsidered for index eligibility after a period of 12 months from when it comes out
of bankruptcy protection.
A stock will also be deleted if the sponsor becomes aware (at
a quarterly review) that the price of an existing constituent is considered reaching its minimum permissible trade price. The constituent
will be removed from the RTY Index in line with the review subject to it still being at the minimum permissible trade price up to the
start of the quarterly review lock down period. The stock will only be reconsidered for index eligibility after a period of 12 months.
Stock Distributions and distributions in specie—
A price adjustment for stock distributions is applied on the ex-date of the distribution. Where the sponsor is able to value a distribution
in specie prior to the ex-date, a price adjustment is made to the company paying the dividend at the open on the ex-date. If no valuation
of the distribution exists prior to the ex-date, no price adjustment is applied. Where the company whose holders are receiving the distribution
is an index member, its shares will be increased according to the terms of the distribution. If such company is not an index member, the
distributed shares will be added to the RTY until they have been settled and have listed, at which point they will be removed at the last
traded price giving appropriate notice.
Special Cash Dividends — If a constituent pays
out a special cash dividend, the price of the stock is adjusted to deduct the dividend amount before the open on the ex-date. No adjustment
for regular cash dividends is made in the price return calculation of the RTY.
Updates to Shares Outstanding and Free Float —
The sponsor reviews the RTY quarterly for updates to shares outstanding and to free floats used in calculating the RTY. The changes are
implemented quarterly in March, June, September and December after the close on the third Friday of such month. The June reconstitution
will be implemented on the last Friday of June (unless the last Friday occurs on the 29th or 30th of the month, in which case reconstitution
will occur on the Friday prior).
In March, September and December shares outstanding and free
floats are updated to reflect (i) cumulative share changes greater than 1%, (ii) for constituents with a free float less than or equal
to 15%, cumulative free float changes greater than 1%, and (iii) for constituents with a free float greater than 15%, cumulative free
float changes greater than 3%. Updates to shares outstanding and free floats will be implemented each June regardless of size (i.e., the
percentage change thresholds above will not be applied). FTSE Russell implements the June updates using data sourced primarily from the
companies’ publicly available information filed with the SEC.
Outside of the quarterly update cycle, outstanding shares and
free float will be updated with at least two days’ notice if prompted by primary or secondary offerings if (i) there is a USD $1
billion investable market capitalization change related to a primary/secondary offering measured by multiplying the change to index shares
by the subscription price or (ii) there is a resultant 5% change in index shares related to a primary or secondary offering and a USD
$250 million investable market capitalization change measured by multiplying the change to index shares by the subscription price. The
pricing date will serve as the trigger for implementation; i.e. once FTSE Russell is aware that an offering has priced, the update will
be implemented with two days’ notice from market close (contingent on the thresholds described above being triggered). If discovery
of the pricing date occurs more than two days after the pricing date, the update will be deferred until the next quarterly review.
If a company distributes shares of an additional share class
to its existing shareholders through a mandatory corporate action, the additional share class will be evaluated for separate index membership.
The new share class will be deemed eligible if the market capitalization of the distributed shares meets the minimum size requirement
(the market capitalization of the smallest member of the Russell 3000ETM Index from the previous rebalance as adjusted for
performance to date). If the additional share class is not eligible at the time of distribution, it will not be added to the RTY.
License Agreement
FTSE Russell has entered into a non-exclusive license agreement
with us, granting us, and certain of our affiliates, in exchange for a fee, permission to use the RTY in connection with the offer and
sale of the Securities. We are not affiliated with FTSE Russell; the only relationship between FTSE Russell and us is the licensing of
the use of the RTY (a trademark of FTSE Russell) and trademarks relating to the RTY. We do not accept any responsibility for the calculation,
maintenance or publication of the RTY or any successor index.
The Securities are not sponsored, endorsed, sold or promoted
by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the Securities or any member of
the public regarding the advisability of investing in securities generally or in the Securities particularly or the ability of the RTY
to track general stock market performance or a segment of the same.
FTSE Russell’s publication of the RTY in no way suggests
or implies an opinion by FTSE Russell as to the advisability of investment in any or all of the securities upon which the RTY is based.
FTSE Russell’s only relationship to us is the licensing of certain trademarks and trade names of FTSE Russell and of the RTY which
is determined, composed and calculated by FTSE Russell without regard to us or the Securities. FTSE Russell is not responsible for and
has not reviewed the Securities nor any associated literature or publications and FTSE Russell makes no representation or warranty express
or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time and without notice, to alter,
amend, terminate or in any way change the RTY. FTSE Russell has no obligation or liability in connection with the administration, marketing
or trading of the Securities.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE RTY OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY US, INVESTORS, HOLDERS OF THE SECURITIES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE RTY OR ANY DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RTY OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Historical Information
The graph below illustrates the performance of the RTY for
the period from January 1, 2011 through July 19, 2021, based on the daily closing levels as reported by Bloomberg, without independent
verification. BNS has not conducted any independent review or due diligence of any publicly available information obtained from Bloomberg.
The closing level of the RTY on July 19, 2021 was 2,130.680. The dotted line represents its downside threshold of 1,598.010, which is
equal to 75.00% of its initial level. Past performance of the RTY is not indicative of the future performance of the RTY during
the term of the Securities.
S&P 500® Index
The S&P 500® Index (which we may refer to
in this section as the “SPX”) includes a representative sample of 500 companies in leading industries of the U.S. economy.
The 500 companies are not the 500 largest companies listed on the New York Stock Exchange (“NYSE”) and not all 500 companies
are listed on the NYSE. S&P Dow Jones Indices LLC (“S&P” or the “sponsor”) chooses companies for inclusion
in the S&P 500® Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution
of these groupings in the common stock population of the U.S. equity market. Although the S&P 500® Index contains 500
constituent companies, at any one time it may contain greater than 500 constituent trading lines since some companies included in the
S&P 500® Index prior to July 31, 2017 may be represented by multiple share class lines in the index. The S&P 500®
Index is calculated, maintained and published by S&P and is part of the S&P Dow Jones Indices family of indices. Additional information,
including information about its constituent stock, sector and country weightings, is available on the following website: spglobal.com/spdji/en/indices/equity/sp-500/
and spglobal.com/. We are not incorporating by reference the websites or any material they include in this pricing supplement or any document
incorporated herein by reference.
S&P intends for the S&P 500® Index to provide
a performance benchmark for the large-cap U.S. equity markets. Constituent changes are made on an as-needed basis and there is no schedule
for constituent reviews. Index additions and deletions are announced with at least three business days advance notice. Less than three
business days’ notice may be given at the discretion of the S&P 500® Index committee (the “S&P Index
Committee”). Relevant criteria for additions to the S&P 500® Index that are employed by S&P include: the
company proposed for addition should have an unadjusted company market capitalization of $11.8 billion or more and a security level float-adjusted
market capitalization of at least 50% of such threshold (for spin-offs, eligibility is determined using when-issued prices, if available);
using composite pricing and volume, the ratio of annual dollar value traded (defined as average closing price over the period multiplied
by historical volume) in the proposed constituent to float-adjusted market capitalization of that company should be at least 1.00 and
the stock should trade a minimum of 250,000 shares in each of the six months leading up to the evaluation date; the company must be a
U.S. company (characterized as a Form 10-K filer with its U.S. portion of fixed assets and revenues constituting a plurality of the total
and with a primary listing of the common stock on the NYSE, NYSE Arca, NYSE American (formerly NYSE MKT), Nasdaq Global Select Market,
Nasdaq Select Market, Nasdaq Capital Market, Cboe BZX (formerly Bats BZX), Cboe BYX (formerly Bats BYX), Cboe EDGA (formerly Bats EDGA)
or Cboe EDGX (formerly Bats EDGX) (each, an “eligible exchange”)); the proposed constituent has an investable weight factor
(“IWF”) of 10% or more; the inclusion of the company will contribute to sector balance in the index relative to sector balance
in the market in the relevant market capitalization range; financial viability (the sum of the most recent four consecutive quarters’
Generally Accepted Accounting Principles earnings (net income excluding discontinued operations) should be positive as should the most
recent quarter); and, for initial public offerings, the company must be traded on an eligible exchange for at least twelve months (spin-offs
or in-specie distributions from existing constituents do not need to be traded on an eligible exchange for twelve months prior to their
inclusion in the S&P 500® Index). In addition, constituents of the S&P MidCap 400® Index and the
S&P SmallCap 600® Index can be added to the S&P 500® Index provided they meet the unadjusted company
level market capitalization eligibility criteria for the S&P 500® Index. Migrations from the S&P MidCap 400®
Index or the S&P SmallCap 600® Index do not need to meet the financial viability, liquidity, or 50% of the S&P
500® Index’s unadjusted company level minimum market capitalization threshold criteria. Further, constituents of
the S&P Total Market Index Ex S&P Composite 1500 (which includes all eligible U.S. common equities except for those included in
the S&P 500® Index, the S&P MidCap 400® Index and the S&P SmallCap 600® Index)
that acquire a constituent of the S&P 500® Index, the S&P MidCap 400® Index or the S&P SmallCap
600® Index that do not fully meet the financial viability or IWF criteria may still be added to the S&P 500®
Index at the discretion of the S&P Index Committee if the S&P Index Committee determines that the addition could minimize turnover
and enhance the representativeness of the S&P 500® Index as a market benchmark. Certain types of organizational structures
and securities are always excluded, including, but not limited to, business development companies, limited partnerships, master limited
partnerships, limited liability companies, OTC bulletin board issues, closed-end funds, exchange-traded funds (“ETFs”), exchange-traded
notes, royalty trusts, tracking stocks, special purpose acquisition companies, preferred stock and convertible preferred stock, unit trusts,
equity warrants, convertible bonds, investment trusts, rights and American depositary receipts. Stocks are deleted from the S&P 500® Index
when they are involved in mergers, acquisitions or significant restructurings such that they no longer meet the inclusion criteria, and
when they substantially violate one or more of the addition criteria. Stocks that are delisted or moved to the pink sheets or the OTC
bulletin board are removed, and those that experience a trading halt may be retained or removed in S&P’s discretion. S&P
evaluates additions and deletions with a view to maintaining S&P 500® Index continuity.
For constituents included in the S&P 500®
Index prior to July 31, 2017, all publicly listed multiple share class lines are included separately in the S&P 500® Index,
subject to, in the case of any such share class line, that share class line satisfying the liquidity and float criteria discussed above
and subject to certain exceptions. It is possible that one listed share class line of a company may be included in the S&P 500®
Index while a second listed share class line of the same company is excluded. For companies that issue a second publicly traded
share class to index share class holders, the newly issued share class line is considered for inclusion if the event is mandatory and
the market capitalization of the distributed class is not considered to be de minimis.
As of July 31, 2017, companies with multiple share class
lines are no longer eligible for inclusion in the S&P 500® Index. Only common shares are considered when determining
whether a company has a multiple share class structure. Constituents of the S&P 500® Index prior to July 31, 2017 with
multiple share class lines will be grandfathered in and continue to be included in the S&P 500® Index. If an S&P
500® Index constituent reorganizes into a multiple share class line structure, that company will be reviewed for continued
inclusion in the S&P 500® Index at the discretion of the S&P Index Committee.
Calculation of the S&P 500® Index
The S&P 500® Index is calculated using
a base-weighted aggregative methodology. The value of the S&P 500® Index on any day for which an index value is published
is determined by a fraction, the numerator of which is the aggregate of the market price of each stock in the S&P 500®
Index times the number of shares of such stock included in the S&P 500® Index, and the denominator of which
is the divisor, which is described more fully below. The “market value” of any index stock is the product of the market
price per share of that stock times the number of the then-outstanding shares of such index stock that are then included in the
S&P 500® Index.
The S&P 500® Index is also sometimes called
a “base-weighted aggregative index” because of its use of a divisor. The “divisor” is a value calculated by S&P
that is intended to maintain conformity in index values over time and is adjusted for all changes in the index stocks’ share capital
after the “base date” as described below. The level of the S&P 500® Index reflects the total market value
of all index stocks relative to the index’s base date of 1941-43.
In addition, the S&P 500® Index is float-adjusted,
meaning that the share counts used in calculating the S&P 500® Index reflect only those shares available to investors
rather than all of a company’s outstanding shares. S&P seeks to exclude shares held by long-term, strategic shareholders concerned
with the control of a company, a group that generally includes the following: officers and directors and related individuals whose holdings
are publicly disclosed, private equity, venture capital, special equity firms, asset managers and insurance companies with board of director
representation, publicly traded companies that hold shares in another company, holders of restricted shares (except for shares held as
part of a lock-up agreement), company-sponsored employee share plans/trusts, defined contribution plans/savings, investment plans, foundations
or family trusts associated with the company, government entities at all levels (except government retirement or pension funds), sovereign
wealth funds and any individual person listed as a 5% or greater stakeholder in a company as reported in regulatory filings (collectively,
“strategic holders”). To this end, S&P excludes all share-holdings (other than depositary banks, pension funds (including
government pension and retirement funds), mutual funds, ETF providers, investment funds, asset managers (including hedge funds with no
board of director representation), investment funds of insurance companies (except in certain countries where insurance companies may
be considered strategic holders based on regulatory issues and country-specific practices) and independent foundations not associated
with the company) with a position greater than 5% of the outstanding shares of a company from the float-adjusted share count to be used
in S&P 500® Index calculations.
The exclusion is accomplished by calculating an IWF for each
stock that is part of the numerator of the float-adjusted index fraction described above:
IWF = (available float shares)/(total
shares outstanding)
where available float shares is defined as total shares outstanding
less shares held by strategic holders. In most cases, an IWF is reported to the nearest one percentage point. For companies with multiple
share class lines, a separate IWF is calculated for each share class line. In most cases, an IWF is reported to the nearest one percentage
point.
Maintenance of the S&P 500® Index
In order to keep the S&P 500® Index comparable
over time S&P engages in an index maintenance process. The S&P 500® Index maintenance process involves changing
the constituents as discussed above, and also involves maintaining quality assurance processes and procedures, adjusting the number of
shares used to calculate the S&P 500® Index, monitoring and completing the adjustments for company additions and
deletions, adjusting for stock splits and stock dividends and adjusting for other corporate actions. In addition to its daily governance
of indices and maintenance of the S&P 500® Index methodology, at least once within any 12 month period, the S&P
Index Committee reviews the S&P 500® Index methodology to ensure the S&P 500® Index continues to
achieve the stated objective, and that the data and methodology remain effective. The S&P Index Committee may at times consult with
investors, market participants, security issuers included in or potentially included in the S&P 500® Index, or investment
and financial experts.
Divisor Adjustments
The two types of adjustments primarily used by S&P are
divisor adjustments and adjustments to the number of shares (including float adjustments) used to calculate the S&P 500®
Index. Set forth below is a table of certain corporate events and their resulting effect on the divisor and the share count. If a corporate
event requires an adjustment to the divisor, that event has the effect of altering the market value of the affected reference asset constituent
stock and consequently of altering the aggregate market value of the reference asset constituent stocks following the event. In order
that the level of the S&P 500® Index not be affected by the altered market value (which could be an increase or decrease)
of the affected reference asset constituent stock, S&P generally derives a new divisor by dividing the post-event market value of
the reference asset constituent stocks by the pre-event index value, which has the effect of reducing the S&P 500®
Index’s post-event value to the pre-event level.
Changes to the Number of Shares of a Constituent
The index maintenance process also involves tracking the
changes in the number of shares included for each of the reference asset companies. Changes as a result of mandatory events, such as mergers
or acquisition driven share/IWF changes, stock splits and mandatory distributions are not subject to a minimum threshold for implementation
and are implemented when the transaction occurs. At S&P’s discretion, however, de minimis merger and acquisition changes may
be accumulated and implemented with the updates made with the quarterly share updates as described below. Material share/IWF changes resulting
from certain non-mandatory corporate actions follow the accelerated implementation rule. Non-material share/IWF changes are implemented
quarterly.
Accelerated Implementation Rule
1. Public offerings. Public offerings of new company-issued
shares and/or existing shares offered by selling shareholders, including block sales and spot secondaries, will be eligible for accelerated
implementation treatment if the size of the event meets the materiality threshold criteria:
|
(a)
|
at least US
$150 million, and
|
|
(b)
|
at least 5%
of the pre-event total shares.
|
|
•
|
be underwritten.
|
|
•
|
have a publicly available prospectus, offering document, or prospectus
summary filed with the relevant authorities.
|
|
•
|
have a publicly available confirmation from an official source that
the offering has been completed.
|
In addition to the materiality threshold, public offerings
must satisfy the following conditions:
For public offerings that involve a concurrent combination
of new company shares and existing shares offered by selling shareholders, both events are implemented if either of the public offerings
represent at least 5% of total shares and $150 million. Any concurrent share repurchase by the affected company will also be included
in the implementation.
2. Dutch Auctions, self-tender offer buybacks, and split-off
exchange offers. These nonmandatory corporate action types will be eligible for accelerated implementation treatment regardless of size
once their results are publicly announced and verified by S&P.
Exception to the Accelerated Implementation Rule
For non-mandatory corporate actions subject to the accelerated
implementation rule with a size of at least US $1 billion, S&P will apply the share change, and any resulting IWF change, using the
latest share and ownership information publicly available at the time of the announcement, even if the offering size is below the 5% threshold.
This exception ensures that very large events are recognized in a timely manner using the latest available information.
All non-mandatory events not covered by the accelerated implementation
rule (including but not limited to private placements, acquisition of private companies, and conversion of non-index share lines) will
be implemented quarterly coinciding with the third Friday of the third month in each calendar quarter. In addition, events that were not
implemented under the accelerated implementation rule but were found to have been eligible, (e.g. due to lack of publicly available information
at the time of the event) are implemented as part of a quarterly rebalancing.
Announcement Policy
For accelerated implementation, S&P will provide two
(2) business days’ notice for all non-US domiciled stocks, and one (1) business days’ notice for all US domiciled stocks.
IWF Updates
Accelerated implementation for events less than $1 billion
will include an adjustment to the company’s IWF only to the extent that such an IWF change helps the new float share total mimic
the shares available in the offering. To minimize unnecessary turnover, these IWF changes do not need to meet any minimum threshold requirement
for implementation. Any IWF change resulting in an IWF of 0.96 or greater is rounded up to 1.00 at the next annual IWF review.
IWF changes will only be made at the quarterly review if
the change represents at least 5% of total current shares outstanding and is related to a single corporate action that did not qualify
for the accelerated implementation rule.
Quarterly share change events resulting from the conversion
of derivative securities, acquisitions of private companies, or acquisitions of non-index companies that do not trade on a major exchange
are considered to be available to investors unless there is explicit information stating that the new owner is a strategic holder.
Other than the situations described above, please note that
IWF changes are only made at the annual IWF review.
Share Updates
When total shares outstanding increase by at least 5%, but
the new share issuance is to a strategic or major shareholder, it implies that there is no change in float- adjusted shares. However,
in such instances, S&P will apply the share change and resulting IWF change regardless of whether the float change is greater than
or equal to 5%.
For companies with multiple share class lines, the 5% share
change threshold is based on each individual multiple share class line rather than total company shares.
Changes to share counts that total less than 5% of total
shares are accumulated and made quarterly on the third Friday of March, June, September, and December.
Exceptions:
Any non- fully paid or non-fully settled offering such as
forward sales agreements are not eligible for accelerated implementation. Share updates resulting from completion of subscription receipts
terms or the settlement of forward sale agreements are updated at a future quarterly share rebalance.
Rebalancing Guidelines – Share/IWF Freeze
A share/IWF freeze period is implemented during each quarterly
rebalancing. The freeze period begins after the market close on the Tuesday prior to the second Friday of each rebalancing month (i.e.
March, June, September, and December) and ends after the market close on the third Friday of the rebalancing month. Pro-forma files are
normally released after the market close on the second Friday, one week prior to the rebalancing effective date. In September, preliminary
share and float data is released on the first Friday of the month. However, the share freeze period for September follows the same schedule
as the other three quarterly share freeze periods. For illustration purposes, if rebalancing pro-forma files are scheduled to be released
on Friday, March 13, the share/IWF freeze period will begin after the close of trading on Tuesday, March 10 and will end after the close
of trading the following Friday, March 20 (i.e. the third Friday of the rebalancing month).
During the share/IWF freeze period, shares and IWFs are not
changed except for mandatory corporate action events (such as merger activity, stock splits, and rights offerings), and the accelerated
implementation rule is suspended. The suspensions include all changes that qualify for accelerated implementation and would typically
be announced or effective during the share/IWF freeze period. At the end of the freeze period all suspended changes will be announced
on the third Friday of the rebalancing month, and implemented five business days after the quarterly rebalancing effective date.
Adjustments for Corporate Actions
There is a large range of corporate actions that may affect
companies included in the S&P 500® Index. Certain corporate actions require S&P to recalculate the share count
or the float adjustment or to make an adjustment to the divisor to prevent the value of the S&P 500® Index from changing
as a result of the corporate action. This helps ensure that the movement of the S&P 500® Index does not reflect the
corporate actions of individual companies in the S&P 500® Index.
Spin-Offs
As a general policy, a spin-off security is added to the
S&P 500® Index on the ex-date at a price of zero (with no divisor adjustment) and will remain in the index for at least
one trading day. On the ex-date the spin-off will have the same attributes and capping adjustment factor as its parent company. The spin-off
security will remain in the S&P 500® Index if it meets all eligibility criteria. If the spin-off security is determined
ineligible to remain in the S&P 500® Index, it will generally be removed after at least one day of regular way trading
(with a divisor adjustment). The weight of the spin-off being deleted is reinvested across all the index components proportionately such
that the relative weights of all index components are unchanged. The net change in index market capitalization will cause a divisor change.
Companies that are spun off from a constituent of the S&P
500® Index do not need to meet the eligibility criteria for new constituents, but they should be considered U.S. domiciled
for index purposes. At the discretion of the S&P Index Committee, a spin-off company may be retained in the S&P 500®
Index if the S&P Index Committee determines it has a total market capitalization representative of the S&P 500®
Index. If the spin-off company’s estimated market capitalization is below the minimum unadjusted company market capitalization for
the S&P 500® Index but there are other constituent companies in the S&P 500® Index that have a significantly
lower total market capitalization than the spin-off company, the S&P Index Committee may decide to retain the spin-off company in
the S&P 500® Index.
Several additional types of corporate actions, and their related treatment, are
listed in the table below.
|
Corporate Action
|
Treatment
|
|
Company addition/deletion
|
Addition
Companies are added at the float market capitalization weight.
The net change to the index market capitalization causes a divisor adjustment.
Deletion
The weights of all stocks in the index will proportionally change. Relative weights
will stay the same. The index divisor will change due to the net change in the index market capitalization.
|
|
Change in shares outstanding
|
Increasing (decreasing) the shares outstanding increases (decreases) the market capitalization of the index. The change to the index market capitalization causes a divisor adjustment.
|
|
Split/reverse split
|
Shares outstanding are adjusted by split ratio. Stock price is adjusted by split ratio. There is no change to the index market capitalization and no divisor adjustment.
|
|
Change in IWF
|
Increasing (decreasing) the IWF increases (decreases) the market capitalization of the index. A net change to the index market capitalization causes a divisor adjustment.
|
|
Ordinary dividend
|
When a company pays an ordinary cash dividend, the index does not make any adjustments to the price or shares of the stock. As a result there are no divisor adjustments to the index.
|
|
Special dividend
|
The stock price is adjusted by the amount of the special dividend. The net change to the index market capitalization causes a divisor adjustment.
|
|
Rights offering
|
All rights offerings that are in-the-money on the ex-date are applied under the assumption the rights are fully subscribed. The stock price is adjusted by the value of the rights and the shares outstanding are increased by the rights ratio. The net change in market capitalization causes a divisor adjustment.
|
Any company that is removed from the S&P 500®
Index, the S&P MidCap 400® Index or the S&P SmallCap 600® Index must wait a minimum of one year
from its removal date before being reconsidered as a replacement candidate for the S&P 500® Index.
Recalculation Policy
S&P reserves the right to recalculate and republish the
S&P 500® Index at its discretion in the event one of the following issues has occurred: (1) incorrect or revised closing
price of one or more constituent securities; (2) missed or misapplied corporate action; (3) incorrect application of an index methodology;
(4) late announcement of a corporate action; or (5) incorrect calculation or data entry error. The decision to recalculate the S&P
500® Index is made at the discretion of the index manager and/or S&P Index Committee, as further discussed below. The
potential market impact or disruption resulting from a recalculation is considered when making any such decision. In the event of an incorrect
closing price, a missed or misapplied corporate action, a late announcement of a corporate action, or an incorrect calculation or data
entry error that is discovered within two trading days of its occurrence, generally the index is recalculated. In the event any such event
is discovered beyond the two trading day period, the S&P Index Committee shall decide whether the index should be recalculated. In
the event of an incorrect application of the methodology that results in the incorrect composition and/or weighting of index constituents,
the S&P Index Committee shall determine whether or not to recalculate the index following specified guidelines. In the event that
the index is recalculated, it shall be done within a reasonable timeframe following the detection and review of the issue.
Calculations and Pricing Disruptions
Closing levels for the S&P 500®
Index are calculated by S&P based on the closing price of the individual constituents of the index as set by their primary exchange.
Closing prices are received by S&P from one of its third party vendors and verified by comparing them with prices from an alternative
vendor. The vendors receive the closing price from the primary exchanges. Real-time intraday prices are calculated similarly without a
second verification. Prices used for the calculation of real time index values are based on the “Consolidated Tape”. The Consolidated
Tape is an aggregation of trades for each constituent over all regional exchanges and trading venues and includes the primary exchange.
If there is a failure or interruption on one or more exchanges, real-time calculations will continue as long as the “Consolidated
Tape” is operational.
If an interruption is not resolved prior to the market
close, official closing prices will be determined by following the hierarchy set out in NYSE Rule 123C. A notice is published on the S&P
website at spglobal.com indicating any changes to the prices used in S&P 500® Index calculations. In extreme circumstances,
S&P may decide to delay index adjustments or not publish the S&P 500® Index. Real-time indices are not restated.
Unexpected Exchange Closures
An unexpected market/exchange closure occurs when a market/exchange
fully or partially fails to open or trading is temporarily halted. This can apply to a single exchange or to a market as a whole, when
all of the primary exchanges are closed and/or not trading. Unexpected market/exchange closures are usually due to unforeseen circumstances,
such as natural disasters, inclement weather, outages, or other events.
To a large degree, S&P is dependent on the exchanges to
provide guidance in the event of an unexpected exchange closure. S&P’s decision making is dependent on exchange guidance regarding
pricing and mandatory corporate actions.
NYSE Rule 123C provides closing contingency procedures for
determining an official closing price for listed securities if the exchange is unable to conduct a closing transaction in one or more
securities due to a system or technical issue.
3:00 PM ET is the deadline for an exchange to determine its
plan of action regarding an outage scenario. As such, S&P also uses 3:00 PM ET as the cutoff.
If all major exchanges fail to open or unexpectedly halt
trading intraday due to unforeseen circumstances, S&P will take the following actions:
Market Disruption Prior to Open of Trading:
|
|
(i)
|
If all exchanges indicate that trading will not open for a given day, S&P will treat the day as an
unscheduled market holiday. The decision will be communicated to clients as soon as possible through the normal channels. Indices containing
multiple markets will be calculated as normal, provided that at least one market is open that day. Indices which only contain closed markets
will not be calculated.
|
|
|
(ii)
|
If exchanges indicate that trading, although delayed, will open for a given day, S&P will begin index
calculation when the exchanges open.
|
Market Disruption Intraday:
If exchanges indicate that trading will not resume for a given
day, the S&P 500® Index level will be calculated using prices determined by the exchanges based on NYSE Rule 123C.
Intraday S&P 500® Index values will continue to use the last traded composite price until the primary exchange publishes
official closing prices.
License Agreement
S&P® is a registered trademark of Standard
& Poor’s Financial Services LLC (“SPFS”) and Dow Jones® is a registered trademark of Dow Jones Trademark
Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by S&P Dow Jones Indices LLC. “Standard
& Poor’s®”, “S&P 500®” and “S&P®” are trademarks
of SPFS. These trademarks have been sublicensed for certain purposes by us. The S&P 500® Index is a product of S&P
Dow Jones Indices LLC and/or its affiliates and has been licensed for use by us for a fee:
The Securities are not sponsored, endorsed, sold or promoted
by S&P Dow Jones Indices LLC, Dow Jones, SPFS or their respective affiliates (collectively, “S&P Dow Jones Indices”).
S&P Dow Jones Indices makes no representation or warranty, express or implied, to the owners of the Securities or any member of the
public regarding the advisability of investing in securities generally or in the Securities particularly or the ability of the S&P
500® Index to track general stock market performance. S&P Dow Jones Indices’ only relationship to the Bank is
the licensing of certain trademarks and trade names of S&P Dow Jones Indices and/or its third party licensors. The S&P 500®
Index is determined, composed and calculated by S&P Dow Jones Indices without regard to the Bank or the Securities. S&P Dow Jones
Indices has no obligation to take the needs of the Bank or the owners of the Securities into consideration in determining, composing or
calculating the S&P 500® Index. Neither S&P nor its third party licensors are responsible for and has not participated
in the determination of the prices and amount of the Securities or the timing of the issuance or sale of the Securities or in the determination
or calculation of the equation by which the Securities are to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Securities. There is no assurance that investment products based on the S&P 500®
Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment
advisor. Inclusion of a security or futures contract within an index is not a recommendation by S&P Dow Jones Indices to buy, sell,
or hold such security or futures contract, nor is it considered to be
investment advice. Notwithstanding the foregoing, CME Group Inc.
and its affiliates may independently issue and/or sponsor financial products unrelated to the Securities currently being issued by us,
but which may be similar to and competitive with the Securities. In addition, CME Group Inc. and its affiliates may trade financial products
which are linked to the performance of the S&P 500® Index. It is possible that this trading activity will affect the
value of the Securities.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY,
ACCURACY, TIMELINESS OR COMPLETENESS OF THE S&P 500® INDEX OR ANY DATA INCLUDED THEREIN OR ANY COMMUNICATIONS (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MARKS, THE S&P 500® INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST
TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.
THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND US, OTHER THAN THE LICENSORS
OF S&P DOW JONES INDICES.
Historical Information
The graph below illustrates the performance of the SPX for
the period from January 1, 2011 through July 19, 2021, based on the daily closing levels as reported by Bloomberg, without independent
verification. BNS has not conducted any independent review or due diligence of any publicly available information obtained from Bloomberg.
The closing level of the SPX on July 19, 2021 was 4,258.49. The dotted line represents its downside threshold of 3,193.87, which is equal
to 75.00% of its initial level. Past performance of the SPX is not indicative of the future performance of the SPX during the term
of the Securities.
Correlation
of the Underlying Assets
The graph below illustrates the daily performance of the
underlying assets from January 1, 2016 through July 19, 2021. For comparison purposes, each underlying asset has been normalized to have
a closing level of 100 on January 1, 2016 by dividing the closing level of that underlying asset on each trading day by the closing level
of that underlying asset on January 1, 2016 and multiplying by 100. We obtained the closing levels used to determine the normalized closing
levels set forth below from Bloomberg, without independent verification.
The closer the relationship of the daily returns of the underlying
assets over a given period, the more positively correlated those underlying assets are. The lower (or more negative) the correlation of
the underlying assets, the less likely it is that those underlying assets will move in the same direction and therefore, the greater the
potential for the final level of one of those underlying assets to be less than its downside threshold. This is because the less positively
correlated the underlying assets are, the greater the likelihood that at least one of the underlying assets will decrease in value. However,
even if the underlying assets have a higher positive correlation, the final level of one or more of the underlying assets might be less
than its downside threshold as the underlying assets may decrease in value together. Although the correlation of the underlying assets’
performance may change over the term of the Securities, the correlations referenced in setting the terms of the Securities are calculated
using BNS’ internal models at the time when the terms of the Securities are set and are not derived from the daily returns of the
underlying assets over the period set forth below. Lower downside thresholds or a higher upside gearing are generally associated with
lower correlation of the underlying assets, which reflects a greater potential for a loss on your investment at maturity. See “Key
Risks — Risks Relating to Return Characteristics — You are exposed to the individual market risk of each underlying asset”,
“—Because the Securities are linked to the least performing underlying asset, you are exposed to a greater risk of losing
a significant portion or all of your investment at maturity than if the Securities were linked to a single underlying asset” and
“— Greater expected volatility generally indicates an increased risk of loss at maturity” herein.
Past performance of the underlying assets is not indicative
of the future performance of the underlying assets.
What Are
the Tax Consequences of the Securities?
The U.S. federal income tax consequences of your investment
in the Securities are uncertain. There are no statutory provisions, regulations, published rulings or judicial decisions addressing the
characterization for U.S. federal income tax purposes of securities with terms that are substantially the same as the Securities. Some
of these tax consequences are summarized below, but we urge you to read the more detailed discussion in “Material U.S. Federal Income
Tax Consequences”, in the accompanying product prospectus supplement and to discuss the tax consequences of your particular situation
with your tax advisor. This discussion is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), final,
temporary and proposed U.S. Department of the Treasury (the “Treasury”) regulations, rulings and decisions, in each case,
as available and in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. Tax consequences
under state, local and non-U.S. laws are not addressed herein. No ruling from the U.S. Internal Revenue Service (the “IRS”)
has been sought as to the U.S. federal income tax consequences of your investment in the Securities, and the following discussion is not
binding on the IRS.
U.S. Tax Treatment. Pursuant to the terms of the Securities,
BNS and you agree, in the absence of a statutory or regulatory change or an administrative determination or judicial ruling to the contrary,
to characterize your Securities as prepaid derivative contracts with respect to the underlying assets. If your Securities are so treated,
you should generally recognize long-term capital gain or loss if you hold your Securities for more than one year (and, otherwise, short-term
capital gain or loss) upon the taxable disposition of your Securities, in an amount equal to the difference between the amount you receive
at such time and the amount you paid for your Securities. The deductibility of capital losses is subject to limitations.
Based on certain factual representations received from
us, our special U.S. tax counsel, Cadwalader, Wickersham & Taft LLP, is of the opinion that it would be reasonable to treat your Securities
in the manner described above. However, because there is no authority that specifically addresses the tax treatment of the Securities,
it is possible that your Securities could alternatively be treated for tax purposes as a single contingent payment debt instrument, or
pursuant to some other characterization, such that the timing and character of your income from the Securities could differ materially
and adversely from the treatment described above, as described further under “Material U.S. Federal Income Tax Consequences”,
in the accompanying product prospectus supplement.
Except to the extent otherwise required by law, BNS intends
to treat your Securities for U.S. federal income tax purposes in accordance with the treatment described above and under “Material
U.S. Federal Income Tax Consequences”, including the section “— Securities Treated as Prepaid Derivatives or Prepaid
Forwards”, in the accompanying product prospectus supplement, unless and until such time as the Treasury and the IRS determine that
some other treatment is more appropriate.
Notice 2008-2. In 2007, the IRS released a notice
that may affect the taxation of holders of the Securities. According to Notice 2008-2, the IRS and the Treasury are actively considering
whether a holder of an instrument such as the Securities should be required to accrue ordinary income on a current basis. It is not possible
to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the Securities
will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The IRS and the Treasury are
also considering other relevant issues, including whether additional gain or loss from such instruments should be treated as ordinary
or capital, whether non-U.S. holders of such instruments should be subject to withholding tax on any deemed income accruals, and whether
the special “constructive ownership rules” of Section 1260 of the Code should be applied to such instruments. Both U.S. and
non-U.S. holders are urged to consult their tax advisors concerning the significance, and the potential impact, of the above considerations.
Medicare Tax on Net Investment Income. U.S. holders
that are individuals, estates or certain trusts are subject to an additional 3.8% tax on all or a portion of their “net investment
income,” or “undistributed net investment income” in the case of an estate or trust, which may include any income or
gain realized with respect to the Securities, to the extent of their net investment income or undistributed net investment income (as
the case may be) that, when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000
for a married taxpayer filing a joint return (or a surviving spouse), $125,000 for a married individual filing a separate return or the
dollar amount at which the highest tax bracket begins for an estate or trust. The 3.8% Medicare tax is determined in a different manner
than the regular income tax. U.S. holders should consult their tax advisors as to the consequences of the 3.8% Medicare tax.
Specified Foreign Financial Assets. U.S. holders may
be subject to reporting obligations with respect to their Securities if they do not hold their Securities in an account maintained by
a financial institution and the aggregate value of their Securities and certain other “specified foreign financial assets”
(applying certain attribution rules) exceeds an applicable threshold. Significant penalties can apply if a U.S. holder is required to
disclose its Securities and fails to do so.
Non-U.S. Holders. Subject to Section 897 of the Code
and Section 871(m) of the Code and “FATCA”, discussed below, if you are a non-U.S. holder you should generally not be subject
to U.S. withholding tax with respect to payments on your Securities or to generally applicable information reporting and backup withholding
requirements with respect to payments on your Securities if you comply with certain certification and identification requirements as to
your non-U.S. status (by providing us (and/or the applicable withholding agent) with a fully completed and duly executed applicable IRS
Form W-8). Subject to Section 871(m) of the Code, discussed below, gain realized from the taxable disposition of a Security generally
should not be subject to U.S. tax unless (i) such gain is effectively connected with a trade or business conducted by you in the U.S.,
(ii) you are a non-resident alien individual and are present in the U.S. for 183 days or more during the taxable year of such taxable
disposition and certain other conditions are satisfied or (iii) you have certain other present or former connections with the U.S.
Section 897. We will not attempt to ascertain whether
any underlying constituent issuer would be treated as a “United States real property holding corporation” (“USRPHC”)
within the meaning of Section 897 of the Code. We also have not attempted to determine whether the Notes should be treated as “United
States real property interests” (“USRPI”) as defined in Section 897 of the Code. If any such entity and/or the Notes
were so treated, certain adverse U.S. federal income tax consequences could possibly apply, including subjecting any gain to a non-U.S.
holder in respect of a Note upon a taxable disposition of the Note to the U.S. federal income tax on a net basis, and the proceeds from
such a taxable disposition to a 15% withholding tax. Non-U.S. holders should consult their tax advisors regarding the potential treatment
of any such entity as a USRPHC and/or the Notes as USRPI.
Section 871(m). A 30% withholding tax (which may be
reduced by an applicable income tax treaty) is imposed under Section 871(m) of the Code on certain “dividend equivalents”
paid or deemed paid to a non-U.S. holder with respect to a “specified equity-linked instrument” that references one or more
dividend-paying U.S. equity securities or indices containing U.S. equity securities. The withholding tax can apply even if the instrument
does not provide for payments that reference dividends. Treasury regulations provide that the withholding tax applies to all dividend
equivalents paid or deemed paid on specified equity-linked instruments that have a delta of one (“delta-one specified equity-linked
instruments”) issued after 2016 and to all dividend equivalents paid or deemed paid on all other specified equity-linked instruments
issued after 2018. However, the IRS has issued guidance that states that the Treasury and the IRS intend to amend the effective dates
of the Treasury regulations to provide that withholding on dividend equivalents paid or deemed paid will not apply to specified equity-linked
instruments that are not delta-one specified equity-linked instruments and are issued before January 1, 2023.
Based on our determination that the Securities are not “delta-one”
with respect to the underlying assets or underlying constituents, our special U.S. tax counsel is of the opinion that the Securities should
not be delta-one specified equity-linked instruments and thus should not be subject to withholding on dividend equivalents. Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Furthermore, the application of Section 871(m) of the Code
will depend on our determinations on the date the terms of the Securities are set. If withholding is required, we will not make payments
of any additional amounts.
Nevertheless, after the date the terms are set, it is possible
that your Securities could be deemed to be reissued for tax purposes upon the occurrence of certain events affecting the underlying assets
or underlying constituent or your Securities, and following such occurrence your Securities could be treated as delta-one specified equity-linked
instruments that are subject to withholding on dividend equivalents. It is also possible that withholding tax or other tax under Section
871(m) of the Code could apply to the Securities under these rules If you enter, or have entered, into other transactions in respect of
the underlying assets or underlying constituent or the Securities should consult your tax advisor regarding the application of Section
871(m) of the Code to your Securities in the context of your other transactions.
Because of the uncertainty regarding the application of
the 30% withholding tax on dividend equivalents to the Securities, you are urged to consult your tax advisor regarding the potential application
of Section 871(m) of the Code and the 30% withholding tax to an investment in the Securities.
FATCA. The Foreign Account Tax Compliance Act (“FATCA”)
was enacted on March 18, 2010, and imposes a 30% U.S. withholding tax on “withholdable payments” (i.e., certain U.S.-source
payments, including interest (and original issue discount), dividends, other fixed or determinable annual or periodical gain, profits,
and income, and on the gross proceeds from a disposition of property of a type which can produce U.S.-source interest or dividends) and
“passthru payments” (i.e., certain payments attributable to withholdable payments) made to certain foreign financial institutions
(and certain of their affiliates) unless the payee foreign financial institution agrees (or is required), among other things, to disclose
the identity of any U.S. individual with an account at the institution (or the relevant affiliate) and to annually report certain information
about such account. FATCA also requires withholding agents making withholdable payments to certain foreign entities that do not disclose
the name, address, and taxpayer identification number of any substantial U.S. owners (or do not certify that they do not have any substantial
U.S. owners) to withhold tax at a rate of 30%. Under certain circumstances, a holder may be eligible for refunds or credits of such taxes.
Pursuant to final and temporary Treasury regulations and
other IRS guidance, the withholding and reporting requirements under FATCA will generally apply to certain “withholdable payments”,
will not apply to gross proceeds on a sale or disposition, and will apply to certain foreign passthru payments only to the extent that
such payments are made after the date that is two years after final regulations defining the term “foreign passthru payment”
are published. If withholding is required, we (or the applicable paying agent) will not be required to pay additional amounts with respect
to the amounts so withheld. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental
agreement with the U.S. governing FATCA may be subject to different rules.
Investors should consult their tax advisors about the application
of FATCA, in particular if they may be classified as financial institutions (or if they hold their Securities through a foreign entity)
under the FATCA rules.
Backup Withholding and Information Reporting. The
proceeds received from a taxable disposition of the Securities will be subject to information reporting unless you are an “exempt
recipient” and may also be subject to backup withholding at the rate specified in the Code if you fail to provide certain identifying
information (such as an accurate taxpayer number, if you are a U.S. holder) or meet certain other conditions.
Amounts withheld under the backup withholding rules are not
additional taxes and may be refunded or credited against your U.S. federal income tax liability, provided the required information is
furnished to the IRS.
U.S. Federal Estate Tax Treatment of Non-U.S. Holders.
A Security may be subject to U.S. federal estate tax if an individual non-U.S. holder holds the Security at the time of his or her death.
The gross estate of a non-U.S. holder domiciled outside the U.S. includes only property situated in the U.S. Individual non-U.S. holders
should consult their tax advisors regarding the U.S. federal estate tax consequences of holding the Securities at death.
Proposed Legislation. In 2007, legislation was introduced
in Congress that, if it had been enacted, would have required holders of Securities purchased after the bill was enacted to accrue interest
income over the term of the Securities despite the fact that there will be no interest payments over the term of the Securities.
Furthermore, in 2013, the House Ways and Means Committee
released in draft form certain proposed legislation relating to financial instruments. If it had been enacted, the effect of this legislation
generally would have been to require instruments such as the Securities to be marked to market on an annual basis with all gains and losses
to be treated as ordinary, subject to certain exceptions.
It is not possible to predict whether any similar or identical
bills will be enacted in the future, or whether any such bill would affect the tax treatment of your Securities. You are urged to consult
your tax advisor regarding the possible changes in law and their possible impact on the tax treatment of your Securities.
Both U.S. and non-U.S. holders are urged to consult their
tax advisors concerning the application of U.S. federal income tax laws to their particular situation, as well as any tax consequences
of the purchase, beneficial ownership and disposition of the Securities arising under the laws of any state, local, non-U.S. or other
taxing jurisdiction (including that of BNS).