The Bank of Nova Scotia $16,669,000 Trigger Autocallable Contingent Yield Notes
The Bank of Nova Scotia Trigger Autocallable Contingent Yield
Notes (the “Notes”) are senior unsecured debt securities issued by The Bank of Nova Scotia (“BNS” or the “issuer”)
linked to the Russell 2000® Index (the “underlying asset”). BNS will pay a contingent coupon on the coupon
payment date only if the closing level of the underlying asset on the applicable observation date (including the final valuation date)
is equal to or greater than the coupon barrier. Otherwise, no contingent coupon will be paid for the relevant coupon payment date. BNS
will automatically call the Notes early if the closing level of the underlying asset on any observation date (quarterly, callable after
6 months) prior to the final valuation date is equal to or greater than the initial level. If the Notes are subject to an automatic call,
BNS will pay on the applicable coupon payment date following such observation date (the “call settlement date”) a cash payment
per Note equal to your principal amount plus the contingent coupon otherwise due, and no further payments will be owed to you under the
Notes. If the Notes are not subject to an automatic call and the closing level of the underlying asset on the final valuation date (the
“final level”) is equal to or greater than the downside threshold, BNS will pay you a cash payment per Note at maturity equal
to the principal amount. If, however, the Notes are not subject to an automatic call and the final level is less than the downside threshold,
BNS will pay you a cash payment per Note at maturity that is less than the principal amount, if anything, resulting in a percentage loss
on your principal amount equal to the percentage decline in the underlying asset from the trade date to the final valuation date (the
“underlying return”) and, in extreme situations, you could lose your entire investment in the Notes. Investing in the Notes
involves significant risks. You may lose a significant portion or all of your investment and may not receive any contingent coupon during
the term of the Notes. Generally, a higher contingent coupon rate on a Note is associated with a greater risk of loss and a greater risk
that you will not receive contingent coupons over the term of the Notes. The contingent repayment of principal applies only at maturity.
Any payment on the Notes, 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 Notes and you could lose your entire investment.
Notice to investors: the Notes are significantly riskier
than conventional debt instruments. The issuer is not necessarily obligated to repay the principal amount of the Notes at maturity, and
the Notes may have the same downside market risk as the underlying asset. This market risk is in addition to the credit risk inherent
in purchasing a debt obligation of BNS. You should not purchase the Notes if you do not understand or are not comfortable with the significant
risks involved in investing in the Notes.
You should carefully consider the risks described under
“Key Risks” beginning on page P-5 and under “Additional Risk Factors Specific to the Notes” beginning on page
PS-6 of the accompanying product prospectus supplement and “Risk Factors” beginning on page S-2 of the accompanying prospectus
supplement and on page 5 of the accompanying prospectus. Events relating to any of those risks, or other risks and uncertainties, could
adversely affect the market value of, and the return on, your Notes. You may lose a significant portion or all of your investment in the
Notes. The Notes will not be listed or displayed on any securities exchange or any electronic communications network.
See “Additional Information about BNS and the
Notes” on page ii. The Notes will have the terms set forth in the accompanying product prospectus supplement dated November 19,
2020, the accompanying prospectus supplement dated November 19, 2020, the accompanying prospectus dated December 26, 2018 and this document.
Neither the Securities and Exchange Commission (the
“SEC”) nor any other regulatory body has approved or disapproved of these Notes or passed upon the adequacy or accuracy of
this document, the accompanying product prospectus supplement, the accompanying prospectus supplement or the accompanying prospectus.
Any representation to the contrary is a criminal offense.
The Notes are not insured by the Canada Deposit Insurance
Corporation (the “CDIC”) pursuant to the Canada Deposit Insurance Corporation Act (the “CDIC Act”) or the U.S.
Federal Deposit Insurance Corporation or any other government agency of Canada, the U.S. or any other jurisdiction. The Notes are not
bail-inable debt securities under the CDIC Act.
Additional Information
about BNS and the Notes
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 Notes 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 Notes 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 Notes 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 Notes” of the accompanying product prospectus supplement and in “Risk
Factors” of the accompanying prospectus supplement and of the accompanying prospectus, as the Notes 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 Notes in light of your particular circumstances.
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You may access these documents on the SEC website at www.sec.gov as follows:
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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 Autocallable Contingent Yield Notes” or the “Notes” refer to the Notes 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.
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BNS reserves the right to change the terms of, or reject any offer to purchase, the Notes prior to their issuance. In the event of any changes to the terms of the Notes, 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.
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Investor
Suitability
The Notes may be suitable for you if:
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You fully understand and are willing to accept the risks inherent in an investment in the Notes, including
the risk of loss of a significant portion or all of your investment.
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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 underlying asset or the stocks comprising the
underlying asset (the “underlying constituents”).
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You are willing to receive few or no contingent coupons and believe the closing level of the underlying
asset will be equal to or greater than the coupon barrier on the specified observation dates and that the final level will be equal to
or greater than the downside threshold.
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You understand and accept that you will not participate in any appreciation in the level of the underlying
asset and that your potential return is limited to any contingent coupons.
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You can tolerate fluctuations in the price of the Notes prior to maturity that may be similar to or exceed
the downside fluctuations in the level of the underlying asset.
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You are willing to invest in the Notes based on the downside threshold, coupon barrier and contingent
coupon rate specified on the cover hereof.
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You do not seek guaranteed current income from your investment and are willing to forgo any dividends
paid on the underlying constituents.
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You are willing to invest in Notes that may be subject to an automatic call and you are otherwise willing
to hold such Notes to maturity and you accept that there may be little or no secondary market for the Notes.
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You understand and are willing to accept the risks associated with the underlying asset.
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You are willing to assume the credit risk of BNS for all payments under the Notes, and understand that
if BNS defaults on its obligations you may not receive any amounts due to you including any repayment of principal.
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The Notes may not be suitable for you if:
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You do not fully understand or are not willing to accept the risks inherent in an investment in the Notes,
including the risk of loss of a significant portion or all of your investment.
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You require an investment designed to provide a full return of principal at maturity.
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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 underlying asset or the underlying constituents.
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You are unwilling to receive few or no contingent coupons during the term of the Notes and believe that
the level of the underlying asset will decline during the term of the Notes and is likely to be less than the coupon barrier on at least
one observation date or that the final level will be less than the downside threshold.
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You seek an investment that participates in the full appreciation of the level of the underlying asset
or that has unlimited return potential.
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You cannot tolerate fluctuations in the price of the Notes prior to maturity that may be similar to or
exceed the downside fluctuations in the level of the underlying asset.
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You are unwilling to invest in the Notes based on the downside threshold, coupon barrier or contingent
coupon rate specified on the cover hereof.
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You seek guaranteed current income from this investment or prefer to receive any dividends paid on the
underlying constituents.
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You are unable or are unwilling to invest in Notes that may be subject to an automatic call, you are otherwise
unable or unwilling to hold the Notes to maturity or you seek an investment for which there will be an active secondary market for the
Notes.
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You do not understand or are unwilling to accept the risks associated with the underlying asset.
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You are unwilling to assume the credit risk of BNS for all payments under the Notes, including any repayment
of principal.
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The suitability considerations identified above are
not exhaustive. Whether or not the Notes 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 Notes in light of your particular circumstances. You should review “Information About the Underlying
Asset” herein for more information on the underlying asset. You should also review carefully the “Key Risks” section
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 Notes.
Final Terms
Issuer
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The Bank of Nova Scotia
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Issue
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Senior Note Program, Series A
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Agents
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Scotia Capital (USA) Inc. (“SCUSA”) and UBS Financial Services Inc. (“UBS”). See “Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)” herein for additional information.
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Principal Amount
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$10 per Note
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Term
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Approximately 2 years, unless subject to an automatic call.
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Underlying
Asset
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The Russell 2000® Index
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Contingent Coupon and Contingent Coupon Rate
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If the closing level of the underlying asset is equal
to or greater than the coupon barrier on any observation date (including the final valuation date), BNS will pay you the contingent
coupon applicable to such observation date on the related coupon payment date.
If the closing level of the underlying asset is less than
the coupon barrier on any observation date (including the final valuation date), the contingent coupon applicable to such observation
date will not accrue or be payable and BNS will not make any payment to you on the related coupon payment date.
The contingent coupon is a fixed amount based upon equal
periodic installments at a per annum rate (the “contingent coupon rate”). The table below sets forth the contingent coupon
rate and contingent coupon for each Note that would be applicable to each observation date on which the closing level of the underlying
asset is equal to or greater than the coupon barrier.
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Contingent Coupon Rate
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6.25%
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Contingent Coupon
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$0.1563
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Contingent coupons on the Notes are not guaranteed. BNS will not pay you the contingent coupon for any observation date on which the closing level of the underlying asset is less than the coupon barrier.
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Automatic Call Feature
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BNS will automatically call the Notes if the closing level
of the underlying asset on any observation date (quarterly, callable after 6 months) prior to the final valuation date is equal to or
greater than the initial level.
If the Notes are subject to an automatic call, BNS will pay
you on the corresponding coupon payment date (which will be the “call settlement date”) a cash payment per Note equal to your
principal amount plus the contingent coupon otherwise due on such date (the “call settlement amount”). Following an automatic
call, no further payments will be made on the Notes.
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Payment at Maturity (per Note)
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If the Notes are not subject to an automatic call and
the final level is equal to or greater than the downside threshold, BNS will pay you a cash payment equal to:
Principal Amount of $10
If the Notes are not subject to an automatic call and
the final level is less than the downside threshold, BNS will pay you a cash payment that is less than the principal amount, if anything,
equal to:
$10 x (1 + Underlying Return)
In this case, you will suffer a percentage loss on
your principal amount equal to the underlying return and, in extreme situations, you could lose your entire investment in the Notes.
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Underlying Return
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The quotient, expressed as a percentage, of the following
formula:
Final Level – Initial Level
Initial Level
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Downside Threshold(1)
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A specified level of the underlying asset that is less than the initial level, equal to a percentage of the initial level, as indicated on the cover hereof.
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Coupon Barrier(1)
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A specified level of the underlying asset that is less than the initial level, equal to a percentage of the initial level, as indicated on the cover hereof.
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Initial Level(1)
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The closing level of the underlying asset on the trade date, as indicated on the cover hereof.
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Final Level(1)
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The closing level of the underlying asset on the final valuation date.
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Trading Day
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As specified in the product prospectus supplement under “General Terms of the Notes — Special Calculation Provisions — Trading Day”.
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Tax Redemption
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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 Notes.
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Canadian Bail-in
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The Notes are not bail-inable debt securities under the CDIC Act.
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Terms Incorporated
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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”, “downside threshold” and “observation dates” mean “reference asset”, “reference asset constituents”, “percentage change”, “barrier level” and “valuation dates”, 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 Notes based on the methodology for calculating per annum rates provided for in the Notes. 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 Notes.
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(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.
Investment
Timeline
Trade Date
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The initial level of the underlying asset is observed and the final terms of the Notes are set.
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Observation Dates (quarterly, callable after 6 months)
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If the closing level of the underlying asset is equal to
or greater than the coupon barrier on any observation date (including the final valuation date), BNS will pay you a contingent coupon
on the applicable coupon payment date.
The Notes will be subject to an automatic call if the closing
level of the underlying asset on any observation date (quarterly, callable after 6 months) prior to the final valuation date is equal
to or greater than the initial level.
If the Notes are subject to an automatic call, BNS will pay
you a cash payment per Note on the call settlement date equal to $10 plus the contingent coupon otherwise due on such date. Following
an automatic call, no further payments will be made on the Notes.
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Maturity Date
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The final level is observed on the final valuation date and
the underlying return of the underlying asset is calculated.
If the Notes are not subject to an automatic call and
the final level is equal to or greater than the downside threshold, BNS will pay you a cash payment per Note at maturity equal to:
Principal Amount of $10
If the Notes are not subject to an automatic call and
the final level is less than the downside threshold, BNS will pay you a cash payment per Note at maturity that is less than the principal
amount, if anything, equal to:
$10 x (1 + Underlying Return)
In this case, you will suffer a percentage loss on
your principal amount equal to the underlying return and, in extreme situations, you could lose your entire investment in the Notes.
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Investing in the Notes involves significant risks. You
may lose a significant portion or all of your investment in the Notes. Any payment on the Notes, 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 Notes and you could lose your entire investment.
If the Notes are not subject to an automatic call, you
may lose a significant portion or all of your investment. Specifically, if the Notes are not subject to an automatic call and the final
level is less than the downside threshold, you will lose a percentage of your principal amount equal to the underlying return and, in
extreme situations, you could lose your entire investment in the Notes.
Observation
Dates(1)(2), Coupon Payment Dates(1)(2)(3) and Call Settlement Dates(1)(2)(3)
Observation Dates
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Coupon
Payment Dates
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Observation Dates
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Coupon
Payment Dates
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October 28, 2021*
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November 1, 2021*
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October 28, 2022
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November 1, 2022
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January 28, 2022*
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February 1, 2022
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January 30, 2023
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February 1, 2023
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April 28, 2022
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May 2, 2022
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April 28, 2023
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May 2, 2023
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July 28, 2022
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August 1, 2022
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Final Valuation Date
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Maturity Date
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* The Notes are not callable
until the first potential call settlement date, which is February 1, 2022.
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(1)
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Subject to the market disruption event provisions set forth under “General Terms of the Notes—Unavailability
of the Level of the Reference Asset on a Valuation Date” and “General Terms of the Notes—Market Disruption Events”
in the accompanying product prospectus supplement.
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(2)
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If you are able to sell your Notes in the secondary market on an observation date, the purchaser of the
Notes will be deemed to be the record holder on the applicable record date and therefore you will not be entitled to any contingent coupon
paid on the corresponding coupon payment date. If an observation date listed above is not a trading day, such date will be the next following
trading day. If an observation date is postponed, the corresponding payment date for the Notes will also be postponed to maintain the
same number of business days between such dates as existed prior to such postponement(s).
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(3)
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Two business days following each observation date (as any such date may be postponed with respect to the
underlying asset), except that the coupon payment date for the final valuation date is the maturity date. If a coupon payment date or
call settlement date is not a business day, such date will be the next following business day.
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Key
Risks
An investment in the offering of the Notes involves significant
risks. Investing in the Notes is not equivalent to a hypothetical investment in the underlying asset or underlying constituents. Some
of the key risks that apply to the Notes are summarized below, but we urge you to read the more detailed explanation of risks relating
to the Notes 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 Notes in light of your particular circumstances.
Risks Relating to Return Characteristics
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Risk of loss at maturity — The Notes differ from ordinary debt securities in that BNS will
not necessarily make periodic coupon payments or repay the principal amount of the Notes at maturity. If the Notes are not subject to
an automatic call and the final level is less than the downside threshold, you will lose a percentage of your principal amount equal to
the underlying return and, in extreme situations, you could lose your entire investment in the Notes.
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The contingent repayment of principal applies only at maturity — You should be willing to
hold your Notes to an automatic call or maturity. If you are able to sell your Notes prior to an automatic call or maturity in the secondary
market, you may have to sell them at a loss relative to your investment even if the level of the underlying asset is equal to or greater
than the downside threshold. All payments on the Notes are subject to the creditworthiness of BNS.
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You may not receive any contingent coupons with respect to your Notes — BNS will not necessarily
make periodic coupon payments on the Notes. BNS will pay a contingent coupon for each observation date on which the closing level of the
underlying asset is equal to or greater than the coupon barrier. If the closing level of the underlying asset is less than the coupon
barrier on any observation date, BNS will not pay you the contingent coupon applicable to such observation date. If the closing level
of the underlying asset is less than the coupon barrier on each of the observation dates, BNS will not pay you any contingent coupons
during the term of, and you will not receive a positive return on, your Notes. Generally, this non-payment of the contingent coupon coincides
with a period of greater risk of principal loss on your Notes.
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Your potential return on the Notes is limited to any contingent coupons and you will not participate
in any appreciation of the underlying asset or underlying constituents — The return potential of the Notes is limited to the
pre-specified contingent coupon rate, regardless of any appreciation of the underlying asset. In addition, your return on the Notes will
vary based on the number of observation dates, if any, on which the requirements of the contingent coupon have been met prior to maturity
or an automatic call. Further, if the Notes are subject to an automatic call, you will not receive any contingent coupons or any other
payment in respect of any observation dates after the applicable call settlement date. Because the Notes may be subject to an automatic
call as early as the first potential call settlement date, the total return on the Notes could be less than if the Notes remained outstanding
until maturity. Furthermore, if the Notes are not subject to an automatic call, you may be subject to the decline of the underlying asset
even though you cannot participate in any appreciation of the underlying asset or underlying constituents. As a result, the return on
an investment in the Notes could be less than the return on a hypothetical direct investment in any or all of the underlying asset or
underlying constituents. In addition, as an owner of the Notes, you will not have voting rights or any other rights of a holder of the
underlying constituents.
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A higher contingent coupon rate or lower downside threshold or coupon barrier may reflect greater expected
volatility of the underlying asset, and greater expected volatility generally indicates an increased risk of loss at maturity —
The economic terms for the Notes, including the contingent coupon rate, coupon barrier and downside threshold, are based, in part, on
the expected volatility of the underlying asset at the time the terms of the Notes are set. “Volatility” refers to the frequency
and magnitude of changes in the level of the underlying asset. The greater the expected volatility of the underlying asset as of the trade
date, the greater the expectation is as of that date that the closing level of the underlying asset could be less than the coupon barrier
on any observation date and that the final level could be less than the downside threshold and, as a consequence, indicates an increased
risk of not receiving a contingent coupon and an increased risk of loss, respectively. All things being equal, this greater expected volatility
will generally be reflected in a higher contingent coupon rate than the yield payable on our conventional debt securities with a similar
maturity or on otherwise comparable securities, and/or a lower downside threshold and/or coupon barrier than those terms on otherwise
comparable securities. Therefore, a relatively higher contingent coupon rate may indicate an increased risk of loss. Further, a relatively
lower downside threshold and/or coupon barrier may not necessarily indicate that the Notes have a greater likelihood of a return of principal
at maturity and/or paying contingent coupons. You should be willing to accept the downside market risk of the underlying asset and the
potential to lose a significant portion or all of your investment in the Notes.
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Reinvestment risk — The Notes will be subject to an automatic call if the closing level of
the underlying asset is equal to or greater than the initial level on certain observation dates prior to the final valuation date, as
set forth under “Observation Dates and Coupon Payment Dates” herein. Because the Notes could be subject to an automatic call,
the term of your investment may be limited. In the event that the Notes are subject to an automatic call, there is no guarantee that you
would be able to reinvest the proceeds at a comparable return and/or with a comparable contingent coupon rate for a similar level of risk.
In addition, to the extent you are able to reinvest such proceeds in an investment comparable to the Notes, you may incur transaction
costs such as dealer discounts and hedging costs built into the price of the new securities. Generally, however, the longer the Notes
remain outstanding, the less likely the Notes will be subject to an automatic call due to the decline in the level of the underlying asset
and the shorter time remaining for the level of the underlying asset to recover. Such periods generally coincide with a period of greater
risk of principal loss on your Notes.
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Risks Relating to Characteristics
of the Underlying Asset
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Market risk — The return on the Notes, which may be negative, is directly linked to the performance
of the underlying asset and indirectly linked to the value of the underlying constituents. The level of the underlying asset can rise
or fall sharply due to factors specific to the underlying asset and its underlying constituents and their issuers (each, an “underlying
constituent issuer”), such as stock price volatility, earnings and 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 asset. You, as an investor in the Notes, should conduct your
own investigation into the underlying asset and underlying constituents.
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There can be no assurance that the investment view implicit in the Notes will be successful —
It is impossible to predict whether and the extent to which the level of the underlying asset will rise or fall and there can be no
assurance that the closing level of the underlying asset will be equal to or greater than the coupon barrier on any observation date,
or, if the Notes are not subject to an automatic call, that the final level will be equal to or greater than the downside threshold. The
level of the underlying asset will be influenced by complex and interrelated political, economic, financial and other factors that affect
the underlying constituent issuers. You should be willing to accept the downside risks associated with the relevant market(s) tracked
by the underlying asset in general and the underlying asset and its underlying constituents in particular, and the risk of losing a significant
portion or all of your investment.
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The underlying asset reflects price return, not total return — The return on your Notes is
based on the performance of the underlying asset, which reflect the changes in the market prices of the underlying constituents. Your
Notes are not, however, linked to 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 Notes will not include such a total return feature
or any dividend component.
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The Notes are subject to small-capitalization stock risks — The Notes are subject to risks
associated with small-capitalization companies because the underlying asset 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 underlying asset may be more volatile than an index in which a greater percentage of the 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.
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BNS cannot control actions by the index sponsor and the index sponsor has no obligation to consider
your interests — None of BNS, UBS or our or their respective affiliates are affiliated with the index sponsor 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 asset. The index sponsor is not involved in the Notes offering in any way and has no obligation to
consider your interest as an owner of the Notes in taking any actions that might affect the market value of, and any amount payable on,
the Notes.
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Changes affecting the underlying asset could have an adverse effect on the market value of, and any
amount payable on, the Notes — The policies of the index sponsor as specified under “Information About the Underlying
Asset” (together, the “index sponsor”), concerning additions, deletions and substitutions of the underlying constituents
and the manner in which the index sponsor takes account of certain changes affecting those underlying constituents may adversely affect
the level of the underlying asset. The policies of the index sponsor with respect to the calculation of the underlying asset could also
adversely affect the level of the underlying asset. The index sponsor may discontinue or suspend calculation or dissemination of the underlying
asset. Any such actions could have an adverse effect on the market value of, and any amount payable on, the Notes.
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Risks Relating to Estimated
Value and Liquidity
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BNS’ initial estimated value of the Notes at the time of pricing (when the terms of your Notes
were set on the trade date) is lower than the issue price of the Notes — BNS’ initial estimated value of the Notes is
only an estimate. The issue price of the Notes exceeds BNS’ initial estimated value. The difference between the issue price of the
Notes and BNS’ initial estimated value reflects costs associated with selling and structuring the Notes, as well as hedging its
obligations under the Notes with SCUSA or another affiliate. Therefore, the economic terms of the Notes are less favorable to you than
they would have been if these expenses not been paid or had been lower.
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Neither BNS’ nor SCUSA’s estimated value of the Notes 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 Notes and SCUSA’s estimated value of the Notes 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 Notes 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 Notes as well as the higher
issuance, operational and ongoing liability management costs of the Notes 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 Notes to be
more favorable to you. Consequently, the use of an internal funding rate for the Notes increases the estimated value of the Notes at any
time and has an adverse effect on the economic terms of the Notes.
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BNS’ initial estimated value of the Notes does not represent future values of the Notes and may
differ from others’ (including SCUSA’s) estimates — BNS’ initial estimated value of the Notes was determined
by reference to its internal pricing models when the terms of the Notes were set. These pricing models consider certain factors, such
as BNS’ internal funding rate on the trade date, the expected term of the Notes, market conditions and other relevant factors existing
at that time, and BNS’ assumptions about market parameters, which can include volatility of the underlying asset, 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 Notes that are different, and perhaps materially lower, from BNS’ initial estimated value. Therefore,
the price at which SCUSA would buy or sell your Notes (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.
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The Notes have limited liquidity — The Notes will not be listed on any securities exchange
or automated quotation system. Therefore, there may be little or no secondary market for the Notes. SCUSA and any other affiliates of
BNS intend, but are not required to, make a market in the Notes. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the Notes easily. Because we do not expect that other broker-dealers will participate in the secondary market
for the Notes, the price at which you may be able to trade your Notes is likely to depend on the price, if any, at which SCUSA is willing
to purchase the Notes from you. If at any time SCUSA does not make a market in the Notes, it is likely that there would be no secondary
market for the Notes. Accordingly, you should be willing to hold your Notes to maturity.
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The price at which SCUSA would buy or sell the Notes (if SCUSA makes a market, which it is not obligated
to do) will be based on SCUSA’s estimated value of the Notes and may be greater than BNS’ valuation of the Notes 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 Notes 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
Notes 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 Notes 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 Notes 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 Notes, 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 Notes 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 Notes 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 Notes 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.
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SCUSA’s pricing models consider
certain variables, including principally BNS’ internal funding rate, interest rates (forecasted, current and historical rates),
volatility of the underlying asset, price-sensitivity analysis and the time to maturity of the Notes. 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 Notes in the secondary market, if any, to others may differ, perhaps materially, from the estimated value of
the Notes 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 Notes 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 Notes (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 Notes at any time will reflect many factors and cannot be predicted. If SCUSA makes a market
in the Notes, 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 Notes, including the
price you may receive for the Notes in any market making transaction. To the extent that SCUSA makes a market in the Notes, 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 Notes, 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 Notes in a secondary market sale.
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The price of the Notes prior to maturity will depend on a number of factors and may be substantially
less than the principal amount — Because structured notes, including the Notes, 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 Notes at issuance and the market price of the Notes prior to maturity. Some of these factors include, but are
not limited to: (i) actual or anticipated changes in the level of the underlying asset over the full term of the Notes, (ii) volatility
of the level of the underlying asset and their underlying constituents and the market's perception of future volatility of the foregoing,
(iii) changes in interest rates generally, (iv) any actual or anticipated changes in our credit ratings or credit spreads, (v) dividend
yields on the underlying asset constituents and (vi) time remaining to maturity. In particular, because the provisions of the Notes relating
to the contingent coupons and the payment at maturity behave like options, the value of the Notes will vary in ways which are non-linear
and may not be intuitive.
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Depending on the actual or anticipated
level of the underlying asset and other relevant factors, the market value of the Notes may decrease and you may receive substantially
less than the principal amount if you sell your Notes prior to maturity regardless of the level of the underlying asset at such time.
Risks Relating to Hedging
Activities and Conflicts of Interest
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Hedging activities by BNS and SCUSA may negatively impact investors in the Notes and cause our respective
interests and those of our clients and counterparties to be contrary to those of investors in the Notes — We, SCUSA or one or
more of our other affiliates has hedged or expects to hedge our obligations under the Notes. 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 asset 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 asset 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 basket- or index-linked Notes whose returns are linked to
changes in the level of the underlying asset and/or one or more of the underlying constituents. Any of these hedging activities may adversely
affect the level of the underlying asset—directly or indirectly by affecting the price of the underlying constituents — and
therefore the market value of the Notes and the amount you will receive, if any, on the Notes.
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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 Notes. 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 Notes, and any of the foregoing may receive substantial returns with respect to these hedging
activities while the value of, and return on, the Notes declines.
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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 Notes — 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 Notes 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 asset and/or the value of the Notes. 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
asset and the market for your Notes, 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 Notes.
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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 Notes 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 Notes. 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 Notes.
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 Notes 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 Notes should expect that we, the Agents and our or their respective
affiliates offer securities, financial instruments, and other products that may compete with the Notes for liquidity or otherwise.
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Potential BNS impact on price — Trading or transactions by BNS, the Agents or our or their
respective affiliates in the underlying asset or any underlying constituents, listed and/or over-the-counter options, futures, exchange-traded
funds or other instruments with returns linked to the performance of the underlying asset or any underlying constituents may adversely
affect the level of the underlying asset or underlying constituents and, therefore, the market value of the Notes, the likelihood of a
contingent coupon being paid on any coupon payment date and of the Notes being called on a call payment date. See “— Risks
Relating to Hedging Activities and Conflicts of Interest — Hedging activities by BNS and SCUSA may negatively impact investors in
the Notes and cause our respective interests and those of our clients and counterparties to be contrary to those of investors in the Notes”
for additional information regarding hedging-related transactions and trading.
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The calculation agent will have significant discretion with respect to the Notes, 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
will determine whether the contingent coupon is payable to you on any coupon payment date and the payment at maturity of the Notes, if
any, based on observed closing levels of the underlying asset. The calculation agent can postpone the determination of the closing level
or final level (and therefore the related coupon payment date or maturity date, as applicable) if a market disruption event occurs and
is continuing with respect to the underlying asset on any observation date (including the final valuation date).
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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 Notes, or express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. 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 Notes and the underlying asset to which the Notes are linked.
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Risks Relating to General Credit
Characteristics
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Credit risk of BNS — The Notes 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 Notes, including any repayment of principal,
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 Notes. If BNS were to default on its obligations, you may not receive any amounts owed to you under
the terms of the Notes and you could lose your entire investment in the Notes.
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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.
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BNS is subject to the resolution authority under the CDIC Act — Although the Notes 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 Notes 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.
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Risks Relating to Canadian and
U.S. Federal Income Taxation
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Uncertain tax treatment — Significant aspects of the tax treatment of the Notes 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 Notes?” herein.
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Hypothetical
Examples of How the Notes Might Perform
The below examples are based on hypothetical terms.
The actual terms are indicated on the cover hereof.
The examples below illustrate the payment upon an automatic
call or at maturity for a $10 Note on a hypothetical offering of the Notes, with the following assumptions (amounts may have been rounded
for ease of analysis):
Principal Amount:
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$10
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Term:
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Approximately 2 years
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Contingent Coupon Rate:
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6.25% per annum (or 1.563% per quarter)
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Contingent Coupon:
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$0.1563 per quarter
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Observation Dates:
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Quarterly (callable after 6 months)
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Initial Level:
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4,000.00
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Coupon Barrier:
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3,000.00 (which is 75.00% of the Initial Level)
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Downside Threshold:
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3,000.00 (which is 75.00% of the Initial Level)
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Example 1 — The Closing Level of the Underlying
Asset is equal to or greater than the Initial Level on the Observation Date corresponding to the first potential Call Settlement Date.
Date
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Closing Level
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Payment (per Note)
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First Observation Date
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4,200.00 (equal to or greater than Coupon Barrier and Initial Level)
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$0.1563 (Contingent Coupon – Not Callable)
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Second Observation Date
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4,600.00 (equal to or greater than Coupon Barrier and Initial Level)
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$10.1563 (Call Settlement Amount)
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Total Payment:
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$10.3126 (3.126% total return)
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Because the Notes are subject to an automatic call on the
second observation date (which is approximately 6 months after the trade date and is the first observation date in respect of which they
are callable), BNS will pay you on the call settlement date a total of $10.1563 per Note, reflecting your principal amount plus the applicable
contingent coupon. When added to the contingent coupon of $0.1563 received in respect of the prior observation date, BNS will have paid
you a total of $10.3126 per Note, for a total return of 3.126% on the Notes. No further amount will be owed to you under the Notes.
Example 2 — The Notes are NOT subject to an Automatic
Call and the Final Level is equal to or greater than the Coupon Barrier and Downside Threshold.
Date
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Closing Level
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Payment (per Note)
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First Observation Date
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3,850.00 (equal to or greater than Coupon Barrier; less than Initial Level)
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$0.1563 (Contingent Coupon)
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Second through Seventh Observation Dates
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Various (all less than Coupon Barrier and Initial Level)
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$0.00
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Final Valuation Date
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3,900.00 (equal to or greater than Coupon Barrier and Downside Threshold)
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$10.1563 (Payment at Maturity)
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Total Payment:
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$10.3126 (3.126% total return)
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Because the Notes are not subject to an automatic call and
the final level is equal to or greater than the coupon barrier and downside threshold, BNS will pay you a total of $10.1563 per Note,
reflecting your principal amount plus the applicable contingent coupon. When added to the contingent coupon of $0.1563 received in respect
of the prior observation dates, BNS will have paid you a total of $10.3126 per Note for a total return of 3.126% on the Notes.
Example 3 — The Notes are NOT subject to an Automatic
Call and the Final Level is less than the Coupon Barrier and Downside Threshold.
Date
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Closing Level
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Payment (per Note)
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First Observation Date
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3,500.00 (equal to or greater than Coupon Barrier; less than Initial Level)
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$0.1563 (Contingent Coupon)
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Second through Seventh Observation Dates
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Various (all less than Coupon Barrier and Initial Level)
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$0.00
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Final Valuation Date
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1,600.00 (less than Coupon Barrier and Downside Threshold)
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$10 x (1 + Underlying Return) =
$10 × [1 + (-60%)] =
$10 x 0.40 =
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$4 (Payment at Maturity)
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Total Payment:
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$4.1563 (58.437% loss)
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Because the Notes are not subject to an automatic call and
the final level is less than the coupon barrier and downside threshold, BNS will pay you $4.00 per Note. When added to the contingent
coupon of $0.1563 received in respect of prior observation dates, BNS will have paid you $4.1563 per Note for a loss on the Notes of 58.437%.
Investing in the Notes involves significant risks. The
Notes differ from ordinary debt securities in that BNS is not necessarily obligated to repay the full amount of your investment. If the
Notes are not subject to an automatic call, you may lose a significant portion or all of your investment. Specifically, if the Notes are
not subject to an automatic call and the final level is less than the downside threshold, you will lose a percentage of your principal
amount equal to the underlying return and, in extreme situations, you could lose your entire investment in the Notes.
Any payment on the Notes, including any payments in
respect of an automatic call, contingent coupon or 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 Notes and you could lose your entire investment.
Information
About the Underlying Asset
All disclosures contained in this document regarding the
underlying asset for the Notes are derived from publicly available information. BNS has not conducted any independent review or due diligence
of any publicly available information with respect to the underlying asset. You should make your own investigation into the underlying
asset.
Included below is a brief description of the underlying asset.
This information has been obtained from publicly available sources. Set forth below is a graph that illustrates the past performance for
the underlying asset. We obtained the past performance information set forth below from the Bloomberg Professional® service
(“Bloomberg”) without independent verification. You should not take the historical levels of the underlying asset as an indication
of future performance.
Russell 2000® Index
All disclosures contained herein regarding the underlying
asset (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 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. Information from outside sources is not incorporated by reference in, and should not be considered part of, this
pricing supplement, the accompanying prospectus, the prospectus supplement, or product prospectus supplement.
General
The RTY is sponsored by FTSE Russell and measures the composite
price performance of stocks of 2,000 companies in the U.S. equity market. It is generally considered to be a “small-cap” index.
Additional information about the RTY 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.
Companies included in the Russell 2000® Index
were divided into eleven Industry sectors: Basic Materials, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care,
Industrials, Real estate, Technology, Telecommunications and Utilities. Sector designations are determined by the index sponsor using
criteria it has selected or developed. 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.
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 Friday prior to 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 final week
of reconstitution (during which reconstitution is finalized Friday after U.S. market close), 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, becomes bankrupt, files for bankruptcy
protection, is insolvent or is liquidated, or where evidence of a change in circumstances makes it ineligible for index inclusion. If,
however, a stock is suspended, the sponsor will determine its treatment as follows:
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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);
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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;
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if a constituent continues to be suspended at the end of the 20 business day period, it will be subject
to review and a decision will be taken to either allow the constituent to remain in the RTY for a further period of up to 20 business
days or to remove it at zero value. In making this determination, the sponsor will take into account the stated reasons for the
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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;
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if the suspension period reaches 60 business days, the constituent will be removed from the index at zero
value at the next index review, subject to the 60th business day of suspension occurring on or before the Friday which falls four weeks
prior to the index review implementation date. Where the 60th business day of suspension occurs after such date, the constituent will
be reviewed for removal at the subsequent index review;
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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 60 business day period;
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if, following the end of the 60 business day period, a suspended constituent resumes trading in advance
of the index review lock-down period (i.e., the two week period prior to the index review effective date) in March, June, September or
December, the deletion notice will be rescinded and the constituent will be retained in the RTY. However, where the constituent resumes
trading during the index review lock-down period, the constituent will continue to be removed from the RTY as previously announced but
in these circumstances the deletion will instead 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; and
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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.
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Bankruptcy and Voluntary Liquidations —
Companies that file for a Chapter 7 liquidation bankruptcy or have filed a liquidation plan will be removed from the RTY at the
time of the bankruptcy filing (except when shareholder approval is required to finalize the liquidation plan, in which case the company
will be removed once shareholder approval has been granted); whereas companies filing for a Chapter 11 reorganization bankruptcy will
remain a member of the RTY, unless the company is delisted from the primary exchange, in which case normal delisting rules apply.
If a company files for bankruptcy, is delisted and it can be confirmed that it will not trade on any market, including OTC, the sponsor
may remove the stock at a nominal price of $0.0001.
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 of 5% and less, cumulative
free float changes greater than 0.25%, (iii) for constituents with a free float greater than 5% but less than or equal to 15%, cumulative
free float changes greater than 1%, and (iv) 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). The sponsor 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 notes. 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 notes 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 notes or any member of the public
regarding the advisability of investing in securities generally or in the notes 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 notes. FTSE Russell is not responsible for and has
not reviewed the notes 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 notes.
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 NOTES, 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.
The graph below illustrates the performance of the underlying
asset from January 1, 2011 through July 28, 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 publicly available information obtained from Bloomberg. The closing level
of the underlying asset on July 28, 2021 was 2,224.957. The dotted line represents the downside threshold and the coupon barrier of 1,668.718,
which is equal to 75.00% of the initial level. Past performance of the underlying asset is not indicative of the future performance
of the underlying asset during the term of the Notes.
What
Are the Tax Consequences of the Notes?
The U.S. federal income tax consequences of your investment
in the Notes 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 Notes. 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 Notes, and the following discussion is not binding on the IRS.
U.S. Tax Treatment. Pursuant to the terms of the Notes,
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 the Notes as prepaid derivative contracts with respect to the underlying asset. You further agree to include any contingent
coupon that is paid by BNS (including on the maturity date or call settlement date) in your income as ordinary income in accordance with
your regular method of accounting for U.S. federal income tax purposes.
Under this treatment, you should generally recognize capital
gain or loss upon the taxable disposition of your Notes in an amount equal to the difference between the amount you receive at such time
(other than amounts or proceeds attributable to a contingent coupon or any amount attributable to any accrued but unpaid contingent coupons)
and the amount you paid for your Notes. Such gain or loss should generally be long-term capital gain or loss if you have held your Notes
for more than one year (and, otherwise, should be short-term capital gain or loss). The deductibility of capital losses is subject to
limitations. Although uncertain, it is possible that proceeds received from the taxable disposition of your Notes prior to a coupon payment
date, but that could be attributed to an expected contingent coupon, could be treated as ordinary income. You should consult your tax
advisor regarding this risk.
However, it is possible that IRS could assert that your holding
period in respect of your Notes should end on the date on which the amount you are entitled to receive upon maturity or automatic call
of your Notes is determined, even though you will not receive any amounts from BNS in respect of your Notes prior to the maturity or automatic
call of your Notes. In such case, you may be treated as having a holding period in respect of your Notes prior to the maturity or automatic
call of your Notes, and such holding period may be treated as less than one year even if you receive cash upon the maturity or automatic
call of your Notes at a time that is more than one year after the beginning of your holding period.
Except to the extent otherwise required by law, BNS intends
to treat your Notes for U.S. federal income tax purposes in accordance with the treatment described above and under “Material U.S.
Federal Income Tax Consequences” in the accompanying product prospectus supplement unless and until such time as the IRS and the
Treasury determine that some other treatment is more appropriate.
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 Notes
in the manner described above. However, because there is no authority that specifically addresses the tax treatment of the Notes, it is
possible that your Notes could alternatively be treated for tax purposes as a single contingent payment debt instrument or pursuant to
some other characterization (including possible treatment as a “constructive ownership transaction” under Section 1260 of
the Code), such that the timing and character of your income from the Notes 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.
Notice 2008-2. In 2007, the IRS released a notice
that may affect the taxation of holders of the Notes. According to Notice 2008-2, the IRS and the Treasury are actively considering whether
a holder of an instrument such as the Notes 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 Notes will ultimately
be required to accrue income currently in excess of any receipt of contingent coupons 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 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 Notes, 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 Notes if they do not hold their Notes in an account maintained by a financial
institution and the aggregate value of their Notes 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 Notes
and fails to do so.
Non-U.S. Holders. The U.S. federal income tax treatment
of the contingent coupons is unclear. Subject to Section 871(m) of the Code and FATCA, as discussed below, we currently do not intend
to treat contingent coupons paid to a non-U.S. holder that provides us (and/or the applicable withholding agent) with a fully completed
and validly executed applicable IRS Form W-8 as subject to U.S. withholding tax and we currently do not intend to withhold any tax on
contingent coupons. However, it is possible that the IRS could assert that such payments are subject to U.S. withholding tax, or that
another withholding agent may otherwise determine that withholding is required, in which case such other withholding agent may withhold
up to 30% on such payments (subject to reduction or elimination of such withholding tax pursuant to an applicable income tax treaty).
We will not pay any additional amounts in respect of such withholding. Subject to Section 897 of the Code and Section 871(m) of the Code,
discussed below, gain realized from the taxable disposition of a Note generally should not be subject to U.S. tax unless (i) such gain
is effectively connected with a trade or business conducted by the non-U.S. holder in the U.S., (ii) the non-U.S. holder is a non-resident
alien individual and is 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) the non-U.S. holder has 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 Notes are not “delta-one”
with respect to any U.S. underlying asset or any underlying constituents, our special U.S. tax counsel is of the opinion that the Notes
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 Notes 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 Notes could be deemed to be reissued for tax purposes upon the occurrence of certain events affecting the underlying asset,
any underlying constituents or your Notes, and following such occurrence your Notes 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 Notes under these rules if a non-U.S. holder enters, or has entered, into certain other transactions
in respect of the underlying asset, any underlying constituents or the Notes. A non-U.S. holder that enters, or has entered, into other
transactions in respect of the underlying asset, any underlying constituents or the Notes should consult its tax advisor regarding the
application of Section 871(m) of the Code to its Notes in the context of its other transactions.
Because of the uncertainty regarding the application of
the 30% withholding tax on dividend equivalents to the Notes, 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 Notes.
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 Notes through a foreign entity) under
the FATCA rules.
Backup Withholding and Information Reporting. The
proceeds received from a taxable disposition of the Notes 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 Note may be subject to U.S. federal estate tax if an individual non-U.S. holder holds the Note 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 Notes at death.
Proposed Legislation. In 2007, legislation was introduced
in Congress that, if it had been enacted, would have required holders of Notes purchased after the bill was enacted to accrue interest
income over the term of the Notes despite the fact that there may be no interest payments over the term of the Notes.
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 Notes 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 Notes. You are urged to consult your
tax advisor regarding the possible changes in law and their possible impact on the tax treatment of your Notes.
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 situations, as well as any tax consequences
of the purchase, beneficial ownership and disposition of the Notes arising under the laws of any state, local, non-U.S. or other taxing
jurisdiction (including that of BNS).