|
The information in this Preliminary Pricing Supplement is not complete and may be changed. We may not sell
these notes until the Pricing Supplement is delivered in final form. We are not selling these notes, nor are we soliciting offers to buy these notes, in any State where such offer or sale is not permitted.
Subject to Completion. Dated February 6, 2019
|
|
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-228614
|
The Bank of Nova Scotia
$ Capped Buffered Enhanced Participation Notes
Linked to the MSCI EAFE® Index Due [●]
The notes will not bear interest. The amount that you will be paid on your notes at maturity (expected to be the 2nd
business day after the valuation date) is based on the performance of the MSCI EAFE® Index (the reference asset) as measured from the trade date to and including the valuation date (expected to be between 25 and 28 months after the trade
date).
If the final level on the valuation date is greater than the initial level (set on the trade date),
the return on your notes will be positive and will equal 1.9 times the percentage change, subject to the maximum payment amount (expected to be
between $1,283.29 and $1,332.31 for each $1,000 principal amount of your notes). If the final level declines by up to 15.00% from the initial level, you will receive the principal amount of your notes. If the final level declines by more than 15.00% from the initial level, the return on your notes will be negative and you may lose your entire principal amount. Specifically, you will lose approximately
1.1765% for every 1% negative percentage change below 85.00% of the initial level. Any payment on your notes is subject to the creditworthiness of The Bank of Nova Scotia.
To determine your payment at maturity, we will first calculate the percentage
change, which is the percentage increase or decrease in the final level from the initial level. At maturity, for each $1,000 principal amount of your notes:
|
●
|
if the final level is greater than
the initial level (the percentage change is positive), you will receive an amount in cash equal to the sum of (i) $1,000 plus (ii) the product of (a) $1,000 times (b) the percentage change times (c)
190%, subject to the maximum payment amount;
|
|
●
|
if the final level is equal to the
initial level or less than the initial level, but not by more than 15.00% (the percentage change is zero or negative but equal to or greater than -15.00%), you will receive an amount in cash equal to $1,000; or
|
|
●
|
if the final level is less than
the initial level by more than 15.00% (the percentage change is negative and is less than -15.00%), you will receive an amount in cash
equal to the sum of (i) $1,000 plus
(ii) the product of (a) $1,000 times
(b) the buffer rate of approximately 117.65% times (c) the sum of the percentage change plus 15.00%.
|
Following the determination of the initial level, the amount you will
be paid on your notes at maturity will not be affected by the closing level of the reference asset on any day other than the valuation date. In
addition, no payments on your notes will be made prior to maturity.
Investment in the notes involves certain risks. You should refer to "Additional Risks" beginning on
page P-15 of this pricing supplement and "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.
The initial estimated value of your notes at the time the terms of your notes are set on the trade date is expected to be between $973.50 and $993.50 per $1,000
principal amount, which will be less than the original issue price of your notes listed below. See “Additional Information Regarding Estimated Value of the Notes” on the following page and “Additional
Risks” beginning on page P-15 of this document for additional information. The actual value of your notes at any time will reflect many factors and cannot be predicted with accuracy.
|
|
Per Note
|
Total
|
|
Original Issue Price
|
100.00%
|
$
|
|
Underwriting commissions
|
0.00%
|
$
|
|
Proceeds to The Bank of Nova Scotia
|
100.00%
|
$
|
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS PRICING SUPPLEMENT, THE ACCOMPANYING PROSPECTUS, ACCOMPANYING PROSPECTUS SUPPLEMENT OR ACCOMPANYING PRODUCT PROSPECTUS SUPPLEMENT. 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 UNITED STATES OR ANY OTHER JURISDICTION.
|
Scotia Capital (USA) Inc.
|
|
Pricing Supplement dated February [ ], 2019
|
The Capped Buffered Enhanced Participation Notes Linked to the MSCI EAFE® Index Due [l] (the "notes") offered hereunder are unsubordinated and unsecured obligations of The Bank of Nova Scotia (the "Bank") and are subject to investment risks including possible loss of the
principal amount invested due to the negative performance of the reference asset and the credit risk of The Bank of Nova Scotia. As used in this pricing supplement, the "Bank," "we," "us" or "our" refers to The Bank of Nova Scotia. The notes will not
be listed on any U.S. securities exchange or automated quotation system.
The return on your notes will relate to the price return of the reference asset and will not include a total return or
dividend component. The notes are derivative products based on the performance of the reference asset. The notes do not constitute a direct investment in any of the shares, units or other securities represented by the reference asset. By acquiring
the notes, you will not have a direct economic or other interest in, claim or entitlement to, or any legal or beneficial ownership of any such share, unit or security and will not have any rights as a shareholder, unitholder or other security holder
of any of the issuers including, without limitation, any voting rights or rights to receive dividends or other distributions.
Scotia Capital (USA) Inc. ("SCUSA"), our affiliate, will purchase the notes from us for distribution to one or more
registered broker dealers. SCUSA or any of its affiliates or agents may use this pricing supplement in market-making transactions in notes after their initial sale. Unless we, SCUSA or another of our affiliates or agents selling such notes to you
informs you otherwise in the confirmation of sale, this pricing supplement is being used in a market-making transaction. See "Supplemental Plan of Distribution (Conflicts of Interest)" in this pricing supplement and "Supplemental Plan of
Distribution (Conflicts of Interest)" on page PS-36 of the accompanying product prospectus supplement.
The original issue price, commissions and proceeds to the Bank listed above relate to the notes we issue initially. We
may decide to sell additional notes after the date of the final pricing supplement, at original issue prices and with commissions and proceeds to the Bank that differ from the amounts set forth above. The return (whether positive or negative) on your
investment in the notes will depend in part on the original issue price you pay for such notes.
Additional Information Regarding Estimated Value of the Notes
On the cover page of this pricing supplement, the Bank has provided the initial estimated value range for the notes.
This range of estimated values was determined by reference to the Bank's internal pricing models, which take into consideration certain factors, such as the Bank's internal funding rate on the trade date and the Bank's assumptions about market
parameters. For more information about the initial estimated value, see "Additional Risks" beginning on page P-15.
The economic terms of the notes (including the maximum payment amount) are based on the Bank's internal funding rate,
which is the rate the Bank would pay to borrow funds through the issuance of similar market-linked notes, any underwriting discount and the economic terms of certain related hedging arrangements. Due to these factors, the original issue price you pay
to purchase the notes will be greater than the initial estimated value of the notes. The Bank's internal funding rate is typically lower than the rate the Bank would pay when it issues conventional fixed rate debt securities as discussed further
under "Additional Risks — Neither the Bank's nor SCUSA's estimated value of the notes at any time is determined by reference to credit spreads or the borrowing rate the Bank would pay for its conventional fixed-rate debt securities". The Bank's use
of its internal funding rate reduces the economic terms of the notes to you.
The value of your notes at any time will reflect many factors and cannot be predicted; however, the price (not
including SCUSA's customary bid and ask spreads) at which SCUSA would initially buy or sell notes in the secondary market (if SCUSA makes a market, which it is not obligated to do) is equal to approximately SCUSA’s estimate of the market value of
your notes on the trade date, based on its pricing models and taking into account the Bank's internal funding rate, plus an additional amount (initially equal to $ per $1,000 principal amount).
Prior to , the price (not including SCUSA's customary bid and ask spreads) at which SCUSA would buy or
sell your notes (if it makes a market, which it is not obligated to do) will equal approximately the sum of (a) the then-current estimated value of your notes (as determined by reference to SCUSA's pricing models) plus (b) any remaining additional
amount (the additional amount will decline to zero on a straight-line basis from the time of pricing through approximately 3 months). On and after , the price (not including SCUSA's customary bid and ask spreads) at which SCUSA would
buy or sell your notes (if it makes a market) will equal approximately the then-current estimated value of your notes determined by reference to such pricing models. For additional information regarding the price at which SCUSA would buy or sell your
notes (if SCUSA makes a market, which it is not obligated to do), each based on SCUSA's pricing models; see "Additional Risks — The price at which SCUSA would buy or sell your notes (if SCUSA makes a market, which it is not obligated to do) will be
based on SCUSA's estimated value of your notes".
We urge you to read the "Additional Risks" beginning on page P-15 of this pricing supplement.
P-2
|
Summary
|
The information in this "Summary" section is qualified by the more detailed information set forth in this pricing supplement, the accompanying prospectus, accompanying prospectus supplement, and accompanying product prospectus supplement, each filed with the Securities and Exchange Commission ("SEC"). See "Additional Terms of Your Notes" in this pricing supplement.
|
Issuer:
|
The Bank of Nova Scotia (the "Bank")
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|
| Issue: |
Senior Note Program, Series A |
|
|
CUSIP/ISIN:
|
CUSIP: 064159NJ1 / ISIN: US064159NJ17
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|
|
Type of Notes:
|
Capped Buffered Enhanced Participation Notes
|
|
|
Reference Asset:
|
The MSCI EAFE® Index (Bloomberg Ticker: MXEA)
|
|
|
Minimum Investment and Denominations:
|
$1,000 and integral multiples of $1,000 in excess thereof
|
|
|
Principal Amount:
|
$1,000 per note; $[●] in the aggregate for all the offered notes; the aggregate principal amount of the offered notes may be increased if the Bank,
at its sole option, decides to sell an additional amount of the offered notes on a date subsequent to the date of this pricing supplement.
|
|
|
Original Issue Price:
|
100% of the principal amount of each note
|
|
|
Currency:
|
U.S. dollars
|
|
|
Trade Date:
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[l]
|
|
|
Original Issue Date:
|
[l] (to be determined on the trade date and expected to be the 3rd business
day after the trade date).
We expect that delivery of the notes will be made against payment therefor on or about the 3rd business day following the date of pricing of the notes (this settlement cycle being referred to as “T+3”). Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in two business days (“T+2”), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes on or prior to the business day after the trade date will be required, by virtue of the fact that each note initially will settle in three business days (T+3), to specify alternative settlement arrangements to prevent a failed settlement. |
|
|
Valuation Date:
|
[l] (to be determined on the trade date and expected to be approximately 25 to 28 months
after the trade date).
The valuation date could be delayed by the occurrence of a market disruption event. See "General Terms of the Notes—Market Disruption Events" beginning on page PS-20 in the accompanying product prospectus supplement. Further, if the valuation date is not a trading day, the valuation date will be postponed in the same manner as if a market disruption event has occurred. |
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|
Maturity Date:
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[l] (to be determined on the trade date and expected to be the 2nd business
day after the valuation date), subject to adjustment due to a market disruption event, a non-trading day or a non-business day as described in more detail under "General Terms of the
|
|
|
|
|
P-3
| Notes—Maturity Date" on page PS-18 in the accompanying product prospectus supplement. | ||
|
Principal at Risk:
|
You may lose all or a substantial portion of your initial investment at maturity if there is a percentage decrease from the initial level to the
final level of more than 15.00%.
|
|
|
Purchase at amount other than principal amount:
|
The amount we will pay you on the maturity date for your notes will not be adjusted based on the original issue price you pay for your notes, so if
you acquire notes at a premium (or discount) to the principal amount and hold them to the maturity date, it could affect your investment in a number of ways. The return on your investment in such notes will be lower (or higher) than it
would have been had you purchased the notes at the principal amount. Also, the stated buffer level would not offer the same measure of protection to your investment as would be the case if you had purchased the notes at the principal
amount. Additionally, the maximum payment amount would be triggered at a lower (or higher) percentage return than indicated below, relative to your initial investment. See “Additional Risks—If you purchase your notes at a premium to the
principal amount, the return on your investment will be lower than the return on notes purchased at the principal amount and the impact of certain key terms of the notes will be negatively affected” beginning on page P-19 of this pricing
supplement.
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|
|
Fees and Expenses:
|
As part of the distribution of the notes, SCUSA or one of our affiliates will sell the notes to certain unaffiliated securities dealers at the
original issue price per note specified on the cover hereof. See "Supplemental Plan of Distribution (Conflicts of Interest)" in this pricing supplement.
The price at which you purchase the notes includes costs that the Bank or its affiliates expect to incur and profits that the Bank or its affiliates
expect to realize in connection with hedging activities related to the notes, as set forth below under "Supplemental Plan of Distribution (Conflicts of Interest)". These costs and profits will likely reduce the secondary market price, if
any secondary market develops, for the notes. As a result, you may experience an immediate and substantial decline in the market value of your notes on the trade date. See "Additional Risks—Hedging activities by the Bank 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" in this pricing supplement.
|
|
|
Payment at Maturity:
|
The payment at maturity, for each $1,000 principal amount of notes, will be based on the performance of the reference asset and will be calculated as
follows:
|
|
|
· If the final level is greater than the initial level, then the payment at maturity will equal:
o The lesser of (a) principal amount + [principal amount x percentage change x participation rate] and (b) maximum payment amount
|
||
|
· If the final level is greater than or equal to the buffer level, but less than or equal to the initial level, then the payment at maturity will equal the principal amount
· If the final level is less than the buffer level, then the payment at maturity will equal:
o principal amount + [principal amount x buffer rate x (percentage change + buffer percentage)]
|
||
| In this case you will suffer a percentage loss on your initial investment equal to the buffer rate multiplied by the negative percentage change in excess of
the |
P-4
| buffer percentage. Accordingly, you could lose up to 100% of your initial investment. | ||
|
Closing Level:
|
When we refer to the closing level of the reference asset on any trading day, we mean the closing level of the reference asset or any successor index
reported by Bloomberg Professional® service ("Bloomberg"), or any successor reporting service we may select, on such trading day for the reference asset. Currently, Bloomberg reports the closing level of the reference asset to
fewer decimal places than MSCI Inc., the sponsor of the reference asset (the ''sponsor''). As a result, the closing level of the reference asset reported by Bloomberg generally may be lower or higher than the official closing level of the
reference asset published by the sponsor.
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|
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Initial Level:
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The closing level of the reference asset on the trade date.
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|
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Final Level:
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The closing level of the reference asset on the valuation date. In certain special circumstances, the final level will be determined by the
calculation agent, in its discretion. See "General Terms of the Notes—Unavailability of the Level of the Reference Asset on a Valuation Date" beginning on page PS-19 and "General Terms of the Notes—Market Disruption Events" beginning on
page PS-20 in the accompanying product prospectus supplement.
|
|
|
Percentage Change:
|
The percentage change, expressed as a percentage, with respect to the payment at maturity, is calculated as follows:
final level – initial level
initial level
For the avoidance of doubt, the percentage change may be a negative value.
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Participation Rate:
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190.00%
|
|
|
Buffer Level:
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85.00% of the initial level
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|
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Buffer Percentage:
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15.00%
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Buffer Rate:
|
The quotient of the initial level divided by the buffer level, which equals approximately 117.65%
|
|
|
Maximum Payment Amount:
|
Expected to be between $1,283.29 and $1,332.31 for each $1,000 principal amount of your notes, which equals principal amount x 128.329% - 133.231%
(the actual maximum payment amount to be determined on trade date). The maximum payment amount sets a cap on appreciation of the reference asset of between
14.91% and 17.49%.
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|
|
Form of Notes:
|
Book-entry
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Calculation Agent:
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Scotia Capital Inc., an affiliate of the Bank
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Status:
|
The notes will constitute direct, unsubordinated and unsecured obligations of the Bank ranking pari passu with all other direct, unsecured and unsubordinated indebtedness of the Bank from time to time outstanding (except as otherwise prescribed by law). Holders will not have the
benefit of any insurance under the provisions of the CDIC Act, the U.S. Federal Deposit Insurance Act or under any other deposit insurance regime of any jurisdiction.
|
P-5
|
Tax Redemption:
|
The Bank (or its successor) may redeem the notes, in whole but not in part, at a redemption price determined by the calculation agent in a manner reasonably calculated to preserve your and our relative economic position, if it is determined that changes in tax laws or their interpretation will result in the Bank (or its successor) becoming obligated to pay additional amounts with respect to the notes. See "Tax Redemption" in the accompanying product prospectus supplement. | |
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Listing:
|
The notes will not be listed on any securities exchange or quotation system.
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|
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Use of Proceeds:
|
General corporate purposes
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|
|
Clearance and Settlement:
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Depository Trust Company
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|
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Trading Day:
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A day on which the reference asset is calculated and published by the sponsor of the reference asset (the "sponsor"), regardless of whether one or
more of the principal securities markets for the stocks comprising the reference asset (the "reference asset constituent stocks") are closed on that day.
|
|
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Business Day:
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New York and Toronto
|
|
|
Terms Incorporated:
|
All of the terms appearing above the item under the caption "General Terms of the Notes" beginning on page PS-15 in the accompanying product
prospectus supplement, as modified by this pricing supplement.
|
|
| Canadian Bail-in: |
The notes are not bail-inable debt securities under the CDIC Act. |
INVESTING IN THE NOTES INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE ALL OR A SUBSTANTIAL PORTION OF YOUR INVESTMENT. ANY
PAYMENT ON THE NOTES, INCLUDING ANY REPAYMENT OF PRINCIPAL, IS SUBJECT TO THE CREDITWORTHINESS OF THE BANK. IF THE BANK 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.
P-6
|
ADDITIONAL TERMS OF YOUR NOTES
|
You should read this pricing supplement together with the prospectus dated December 26, 2018, as supplemented by the prospectus supplement dated December 26, 2018 and the product prospectus supplement (Equity Linked Index Notes, Series A) dated December 26, 2018, 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. 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 prospectus supplement; and last, the prospectus. 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.
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 "Additional Risk Factors Specific to the Notes" in the accompanying product prospectus supplement, as the notes involve risks not associated with conventional debt
securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the notes. 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.
Product Prospectus Supplement (Equity Linked Index Notes, Series A) dated December 26, 2018:
Prospectus Supplement dated December 26, 2018:
Prospectus dated December 26, 2018:
P-7
|
INVESTOR SUITABILITY
|
The notes may be suitable for you if:
|
·
|
You fully understand the risks inherent in an investment in the notes, including the risk of losing all or a substantial portion of your initial
investment.
|
|
·
|
You can tolerate a loss of up to 100% of your initial investment.
|
|
·
|
You are willing to make an investment that, if the final level of the reference asset is less than the buffer level, has an accelerated downside
risk greater than the downside market risk of an investment in the reference asset or in the reference asset constituent stocks.
|
|
·
|
You believe that the level of the reference asset will appreciate over the term of the notes and that the appreciation is unlikely to exceed the
cap on appreciation within the maximum payment amount (the actual maximum payment amount will be determined on the trade date).
|
|
·
|
You are willing to hold the notes to maturity, a term of approximately 25 to 28 months, and accept that there may be little or no secondary market
for the notes.
|
|
·
|
You understand and accept that your potential return is limited to the maximum payment amount and you would be willing to invest in the notes if
the maximum payment amount was set equal to the bottom of the range indicated on the cover hereof (the actual maximum payment amount will be set on the trade date).
|
|
·
|
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 reference asset or in the price of its reference asset constituent stocks.
|
|
·
|
You do not seek current income from your investment.
|
|
·
|
You seek an investment with exposure to companies in the developed markets of Europe, Asia, Australia and the Far East.
|
|
·
|
You are willing to assume the credit risk of the Bank for all payments under the notes, and understand that if the Bank defaults on its obligations
you may not receive any amounts due to you including any repayment of principal.
|
The notes may not be suitable for you if:
|
·
|
You do not fully understand the risks inherent in an investment in the notes, including the risk of losing all or a substantial portion of your
initial investment.
|
|
·
|
You require an investment designed to guarantee a full return of principal at maturity.
|
|
·
|
You cannot tolerate a loss of all or a substantial portion of your initial investment.
|
|
·
|
You are not willing to make an investment that, if the final level of the reference asset is less than the buffer level, has an accelerated downside risk greater than the downside market risk of an investment in the reference asset or in the reference asset constituent stocks. |
|
·
|
You believe that the level of the reference asset will decline during the term of the notes and the final level will likely be less than the buffer
level, or you believe the level of the reference asset will appreciate over the term of the notes and that the appreciation is likely to equal or exceed the cap on appreciation within the maximum payment amount (the actual maximum payment
amount will be determined on the trade date).
|
|
·
|
You seek an investment that has unlimited return potential without a cap on appreciation or you would be unwilling to invest in the notes if the
maximum payment amount was set equal to the bottom of the range indicated on the cover hereof (the actual maximum payment amount will be set on the trade date).
|
|
·
|
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 reference asset or in the price of its reference asset constituent stocks.
|
|
·
|
You seek current income from your investment or prefer to receive dividends paid on the reference asset constituent stocks.
|
P-8
|
·
|
You are unable or unwilling to hold the notes to maturity, a term of approximately 25 to 28 months, or you seek an investment for which there will be
a secondary market.
|
|
·
|
You do not seek an investment with exposure to companies in the developed markets of Europe, Asia, Australia and the Far East.
|
|
·
|
You are not willing to assume the credit risk of the Bank for all payments under the notes.
|
The investor 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 also review ''Additional Risks'' in this pricing supplement and the ''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 for risks
related to an investment in the notes.
P-9
HYPOTHETICAL PAYMENTS AT MATURITY ON THE NOTES
The examples set out below are included for illustration purposes only. They should not be taken as an indication or
prediction of future investment results and are intended merely to illustrate the impact that the various hypothetical reference asset levels on the valuation date could have on the payment at maturity assuming all other variables remain constant.
The examples below are based on a range of final levels that are entirely hypothetical; the level of the reference
asset on any day throughout the life of the notes, including the final level on the valuation date, cannot be predicted. The reference asset has been highly volatile in the past, meaning that the level of the reference asset has changed considerably
in relatively short periods, and its performance cannot be predicted for any future period.
The information in the following examples reflects hypothetical rates of return on the offered notes assuming that
they are purchased on the original issue date at the principal amount and held to the maturity date. If you sell your notes in a secondary market prior to the maturity date, your return will depend upon the market value of your notes at the time of
sale, which may be affected by a number of factors that are not reflected in the examples below, such as interest rates, the volatility of the reference asset and our creditworthiness. In addition, the estimated value of your notes at the time the
terms of your notes were set on the trade date (as determined by reference to pricing models used by us) is less than the original issue price of your notes. For more information on the estimated value of your notes, see "Additional Risks— The Bank's initial estimated value of the notes at the time of pricing (when the terms of your notes are set on the trade date) will be lower than the original issue price
of the notes" on page P-15 of this pricing supplement. The information in the examples also reflect the key terms and assumptions in the box below.
|
Key Terms and Assumptions
|
|
|
Principal amount
|
$1,000
|
|
Participation rate
|
190.00%
|
|
Maximum payment amount
|
$1,283.29 for each $1,000 principal amount of your notes*
|
|
Buffer level
|
85.00% of the initial level
|
|
Buffer percentage
|
15.00%
|
|
Buffer rate
|
approximately 117.65%
|
|
*The bottom of the maximum payment amount range of $1,283.29 - $1,332.31 for each $1,000 principal amount of your notes. The actual maximum payment
amount will be determined on the trade date
Neither a market disruption event nor a non-trading day occurs on the originally scheduled valuation date
|
|
|
No change in or affecting any of the reference asset constituent stocks or the method by which the sponsor calculates the reference asset
|
|
|
Notes purchased on the original issue date at the principal amount and held to the maturity date
|
|
Moreover, we have not yet set the initial level that will serve as the baseline for determining the percentage change
or the maximum payment amount, each of which will affect the amount that we will pay on your notes, if any, at maturity. We will not do so until the trade date. As a result, the actual initial level may differ substantially from the level of the
reference asset prior to the trade date.
For these reasons, the actual performance of the reference asset over the life of your notes, as well as the amount
payable at maturity, if any, may bear little relation to the hypothetical examples shown below or to the historical levels of the reference asset shown elsewhere in this pricing supplement. For information about the historical levels of the reference
asset, see "Information Regarding the Reference Asset—Historical Information" below. Before investing in the offered notes, you should consult publicly available information to determine the levels of the reference asset between the date of this
pricing supplement and the date of your purchase of the offered notes.
Also, the hypothetical examples shown below do not take into account the effects of applicable taxes. Because of the
U.S. tax treatment applicable to your notes, tax liabilities could affect the after-tax rate of return on your notes to a comparatively greater extent than the after-tax return on the reference asset constituent stocks.
P-10
The levels in the left column of the table below represent hypothetical final levels and are expressed as percentages
of the initial level. The amounts in the right column represent the hypothetical payment at maturity, based on the corresponding hypothetical final level, and are expressed as percentages of the principal amount of a note (rounded to the nearest
one-thousandth of a percent). Thus, a hypothetical payment at maturity of 100.000% means that the value of the cash payment that we would pay for each $1,000 of the outstanding principal amount of the offered notes on the maturity date would equal
100.000% of the principal amount of a note, based on the corresponding hypothetical final level and the assumptions noted above.
|
Hypothetical Final Level
(as Percentage of Initial Level)
|
Hypothetical Payment at Maturity
(as Percentage of Principal Amount)
|
|
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150.000%
|
128.329%
|
|
|
140.000%
|
128.329%
|
|
|
130.000%
|
128.329%
|
|
|
120.000%
|
128.329%
|
|
|
114.910%
|
128.329%
|
|
|
110.000%
|
119.000%
|
|
|
105.000%
|
109.500%
|
|
|
100.000%
|
100.000%
|
|
|
95.000%
|
100.000%
|
|
|
90.000%
|
100.000%
|
|
|
85.000%
|
100.000%
|
|
|
80.000%
|
94.118%
|
|
|
70.000%
|
82.353%
|
|
|
60.000%
|
70.588%
|
|
|
50.000%
|
58.824%
|
|
|
25.000%
|
29.412%
|
|
|
0.000%
|
0.000%
|
If, for example, the final level were determined to be 25.000% of the initial level, the payment at maturity that we
would pay on your notes at maturity would be approximately 29.412% of the principal amount of your notes, as shown in the table above. As a result, if you purchased your notes on the original issue date at the principal amount and held them to the
maturity date, you would lose approximately 70.588% of your investment (if you purchased your notes at a premium to the principal amount you would lose a correspondingly higher percentage of your investment). If the final level were determined to be
0.000% of the initial level, you would lose 100.000% of your investment in the notes. In addition, if the final level were determined to be 150.000% of the initial level, the payment at maturity that we would pay on your notes would be capped at the
maximum payment amount, or 128.329% of each $1,000 principal amount of your notes, as shown in the table above. As a result, if you held your notes to the maturity
date, you would not benefit from any increase in the final level of greater than 114.910% of the initial level.
P-11
The following chart shows a graphical illustration of the hypothetical payment at maturity that we would pay on your
notes on the maturity date, if the final level were any of the hypothetical levels shown on the horizontal axis. The hypothetical payments at maturity in the chart are expressed as percentages of the principal amount of your notes and the hypothetical final levels are expressed as percentages of
the initial level. The chart shows that any hypothetical final level of less than 85.000% (the section left of the 85.000% marker on the horizontal axis) would result in a hypothetical payment at maturity of less than 100.000% of the principal
amount of your notes (the section below the 100.000% marker on the vertical axis) and, accordingly, in a loss of principal to the holder of the notes. The chart also shows that any hypothetical final level of greater than or equal to 114.910% (the section right of the 114.910% marker on the horizontal axis) would result in a
capped return on your investment.
P-12
The following examples illustrate the calculation of the payment at maturity based on the key terms and assumptions
above. The amounts below have been rounded for ease of analysis.
|
Example 1—
|
Calculation of the payment at maturity where the percentage change is positive.
|
|
|
|
|
|
|
|
Percentage Change:
|
5.00%
|
|
|
|
|
|
|
Payment at Maturity:
|
$1,000.00 + ($1,000.00 x 190.00% x 5.00%) = $1,000.00 + $95.00 = $1,095.00
|
|
|
|
|
|
|
On a $1,000.00 investment, a 5.00% percentage change results in a payment at maturity of $1,095.00.
|
|
|
|
|
|
|
Example 2—
|
Calculation of the payment at maturity where the percentage change is positive and the payment at maturity is subject to the maximum payment amount.
|
|
|
|
|
|
|
|
Percentage Change:
|
50.00%
|
|
|
|
|
|
|
Payment at Maturity:
|
$1,000.00 + ($1,000.00 x 190.00% x 50.00%) = $1,000.00 + $950.00 = $1,950.00. However, the maximum payment amount is $1,283.29 and the payment at
maturity would be $1,283.29.
|
|
|
|
|
|
|
On a $1,000.00 investment, a 50.00% percentage change results in a payment at maturity of $1,283.29.
|
|
|
|
|
|
|
Example 3—
|
Calculation of the payment at maturity where the percentage change is negative but is equal to or greater than -15.00%.
|
|
|
|
|
|
|
|
Percentage Change:
|
-8.00%
|
|
|
|
|
|
|
Payment at Maturity:
|
$1,000.00 (at maturity, if the percentage change is negative BUT the decrease is not more than the buffer percentage, then the payment at maturity will
equal the principal amount).
|
|
|
|
|
|
|
On a $1,000.00 investment, a -8.00% percentage change results in a payment at maturity of $1,000.00.
|
|
|
|
|
|
|
Example 4—
|
Calculation of the payment at maturity where the percentage change is negative and is less than -15.00%.
|
|
|
|
|
|
|
|
Percentage Change:
|
-50.00%
|
|
|
|
|
|
|
Payment at Maturity:
|
$1,000.00 + [$1,000.00 x 117.65% x (-50.00% + 15.00%)] = $1,000.00 - $411.76 = $588.24
|
|
|
|
|
|
|
On a $1,000.00 investment, a -50.00% percentage change results in a payment at maturity of approximately $588.24.
Accordingly, if the percentage change is less than -15.00%, the Bank will pay you less than the full
principal amount, resulting in a percentage loss on your investment that is equal to the buffer rate multiplied by the negative percentage
change in excess of the buffer percentage. You may lose up to 100% of your principal amount.
|
|
P-13
Any payment on the notes, including any repayment of principal, is subject to the creditworthiness
of the Bank. If the Bank 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.
The payments at maturity shown above are entirely hypothetical; they are based on a hypothetical maximum payment
amount, hypothetical levels of the reference asset that may not be achieved on the valuation date and on assumptions that may prove to be erroneous. The actual market value of your notes on the maturity date or at any other time, including any time
you may wish to sell your notes, may bear little relation to the hypothetical payments at maturity shown above, and these amounts should not be viewed as an indication of the financial return on an investment in the offered notes. The hypothetical
payments at maturity on the notes held to the maturity date in the examples above assume you purchased your notes at their principal amount and have not been adjusted to reflect the actual original issue price you pay for your notes. The return on
your investment (whether positive or negative) in your notes will be affected by the amount you pay for your notes. If you purchase your notes for a price other than the principal amount, the return on your investment will differ from, and may be
significantly lower than, the hypothetical returns suggested by the above examples. Please read “Additional Risks—The price at which the notes may be sold prior to maturity will depend on a number of factors and may be substantially less than the
amount for which they were originally purchased” on page P-20 of this pricing supplement.
Payments on the notes are economically equivalent to the amounts that would be paid on a combination of other
instruments. For example, payments on the notes are economically equivalent to a combination of a non- interest-bearing bond bought by the holder and one or more options entered into between the holder and us (with one or more implicit option
premiums paid over time). The discussion in this paragraph does not modify or affect the terms of the notes or the U.S. federal income tax treatment of the notes, as described elsewhere in this pricing supplement.
|
We cannot predict the actual final level or what the market value of your notes will be on any particular trading day, nor can we
predict the relationship between the level of the reference asset and the market value of your notes at any time prior to the maturity date. The actual amount that you will receive, if any, at maturity and the rate of return on the offered
notes will depend on the actual initial level and maximum payment amount, which we will set on the trade date, and the actual final level to be determined by the calculation agent as described above. Moreover, the assumptions on which the
hypothetical returns are based may turn out to be inaccurate. Consequently, the amount of cash to be paid in respect of your notes, if any, on the maturity date may be very different from the information reflected in the examples above.
|
P-14
|
ADDITIONAL RISKS
|
An investment in the notes involves significant risks. In addition to the following risks included
in this pricing supplement, we urge you to read "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 page 5 of the accompanying prospectus.
You should understand the risks of investing in the notes and should reach an investment decision only after careful
consideration, with your advisors, of the suitability of the notes in light of your particular financial circumstances and the information set forth in this pricing supplement and the accompanying prospectus, accompanying prospectus supplement and
accompanying product prospectus supplement.
The Bank's initial estimated value of the notes at the time of pricing (when the terms of your notes are set on the
trade date) will be lower than the original issue price of the notes
The Bank's initial estimated value of the notes is only an estimate. The original issue price of the notes will exceed
the Bank's initial estimated value. The difference between the original issue price of the notes and the Bank's initial estimated value reflects costs associated with selling and structuring the notes, as well as hedging its obligations under the
notes with a third party.
Neither the Bank's nor SCUSA's estimated value of the notes at any time is determined by reference to credit spreads or
the borrowing rate the Bank would pay for its conventional fixed-rate debt securities
The Bank's initial estimated value of the notes and SCUSA's estimated value of the notes at any
time are determined by reference to the Bank's 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 the Bank's conventional
fixed-rate debt securities and the borrowing rate the Bank would pay for its conventional fixed-rate debt securities. This discount is based on, among other things, the Bank's 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 the Bank's conventional fixed-rate debt. If the interest rate implied by the credit spreads for the Bank's conventional fixed-rate debt securities, or
the borrowing rate the Bank would pay for its conventional fixed-rate debt securities were to be used, the Bank 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.
The Bank's initial estimated value of the notes does not represent future values of the notes and may differ from others'
(including SCUSA's) estimates
The Bank's initial estimated value of the notes is determined by reference to its internal pricing models when the terms of the notes are
set. These pricing models consider certain factors, such as the Bank's internal funding rate on the trade date, the expected term of the notes, market conditions and other relevant factors existing at that time, and the Bank's assumptions about
market parameters, which can include volatility, 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 the Bank's 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 the
Bank's initial estimated value. In addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect.
The price at which SCUSA would buy or sell your notes (if SCUSA makes a market, which it is not obligated to do) will be
based on SCUSA's estimated value of your notes
SCUSA's estimated value of the notes is determined by reference to its pricing models and takes into account the Bank's internal funding rate. The price at
which SCUSA would initially buy or sell your notes in the secondary market (if SCUSA makes a market, which it is not obligated to do) exceeds SCUSA's estimated value of your notes at the time of pricing. As agreed by SCUSA and the distribution
participants, this excess (i.e., the additional amount described under "Additional Information Regarding Estimated Value of the Notes" above) will decline to zero on a straight line basis over the period from the trade date through the applicable
date set forth under "Additional Information Regarding Estimated Value of the Notes" above. Thereafter, if SCUSA buys or sells your 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 your notes at any time also will reflect its then current bid and ask spread for similar sized trades of structured notes. If SCUSA calculated its estimated value
P-15
of your notes by reference to the Bank's credit spreads or the borrowing rate
the Bank would pay for its conventional fixed-rate debt securities (as opposed to the Bank's internal funding rate), the price at which SCUSA would buy or sell your notes (if SCUSA makes a market, which it is not obligated to do) could be
significantly lower.
SCUSA's pricing models consider certain variables, including principally the Bank's internal funding rate, interest rates
(forecasted, current and historical rates), volatility, 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 your notes determined by reference to SCUSA's models, taking into
account the Bank's internal funding rate, due to, among other things, any differences in pricing models or assumptions used by others. See "The price at which the notes may be sold prior to maturity will depend on a number of factors and may be
substantially less than the amount for which they were originally purchased" below.
In addition to the factors discussed above, the value and quoted price of your 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 the Bank's creditworthiness or perceived
creditworthiness. These changes may adversely affect the value of your notes, including the price you may receive for your 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.
There is no assurance that SCUSA or any other party will be willing to purchase your notes at any price and, in this
regard, SCUSA is not obligated to make a market in the notes. See "The notes lack liquidity" below.
Risk of loss at maturity
You may lose your entire investment in the notes. Any payment on the notes at maturity depends on the percentage
change of the reference asset. The Bank will only repay you the full principal amount of your notes if the percentage change is equal to or greater than -15.00%. If the percentage change is less than -15.00%, you will have a loss for each $1,000
principal amount of your notes equal to the product of (i) the buffer rate times (ii) the sum of the percentage change plus the buffer percentage times (iii) $1,000. Accordingly, you may lose your entire investment in the notes if the percentage decline from the initial level to the final level is greater than 15.00%.
The downside market exposure to the reference asset is buffered only at maturity
You should be willing to hold your notes to maturity. If you are able to sell your notes prior to maturity in the
secondary market, you may have to sell them at a loss relative to your initial investment even if the level of the reference asset at such time is equal to or greater than the buffer level.
Your potential payment at maturity is limited by the maximum payment amount
The payment at maturity will not exceed the maximum payment amount. Therefore, if the appreciation of the level of the
reference asset exceeds the cap on appreciation in the maximum payment amount, the notes will provide less opportunity to participate in the appreciation of the reference asset than an investment in a security linked to the level of the reference
asset providing full participation in the appreciation. Accordingly, the return on the notes may be less than the return would be if you made an investment in a security directly linked to the positive performance of the reference asset.
The notes differ from conventional debt instruments
The notes are not conventional notes or debt instruments. The notes do not provide you with interest
payments prior to maturity as a conventional fixed-rate or floating-rate debt security with the same maturity would. The return that you will receive on the notes, which could be negative, may be less than the return you could earn on other
investments. Even if your return is positive, your return may be less than the return you would earn if you bought a conventional senior interest bearing debt security of the Bank.
No interest
The notes will not bear interest and, accordingly, you will not receive any interest payments on the notes.
P-16
Your investment is subject to the credit risk of The Bank of Nova Scotia
The notes are senior unsecured debt obligations of the Bank, and are not, either directly or indirectly, an obligation
of any third party. As further described in the accompanying prospectus, accompanying prospectus supplement and accompanying product prospectus supplement, the notes will rank on par with all of the other unsecured and unsubordinated debt obligations
of the Bank, except such obligations as may be preferred by operation of law. Any payment to be made on the notes, including the payment at maturity, depends on the ability of the Bank to satisfy its obligations as they come due. As a result, the
actual and perceived creditworthiness of the Bank may affect the market value of the notes and, in the event the Bank were to default on its obligations, you may not receive the amounts owed to you under the terms of the notes. If you sell the notes
prior to maturity, you may receive substantially less than the principal amount of your notes.
There are potential conflicts of interest between you and the calculation agent
Scotia Capital Inc., the calculation agent, is one of our affiliates. In performing its duties, the economic
interests of the calculation agent are potentially adverse to your interests as an investor in the notes. The calculation agent is under no obligation to consider your interests as a holder of the notes in taking any actions that might affect the
level of the reference asset and the value of the notes.
Investors should investigate the reference asset and the reference asset constituent stocks as if making a hypothetical
direct investment in the reference asset constituent stocks
Investors should conduct their own diligence of the reference asset and reference asset constituent stocks as an
investor would if it were making a hypothetical direct investment in the reference asset constituent stocks. Neither we nor any of our affiliates have participated in the preparation of any publicly available information or made any “due diligence”
investigation or inquiry with respect to the reference asset or the reference asset constituent stocks. Furthermore, we cannot give any assurance that all events occurring prior to the original issue date have been properly disclosed. Subsequent
disclosure of any such events or the disclosure or failure to disclose material future events concerning the reference asset or the reference asset constituent stocks could affect any payment at maturity. Investors should not conclude that the sale
by the Bank of the notes is any form of investment recommendation by the Bank or any of its affiliates to invest in securities linked to the performance of the reference asset or the reference asset constituent stocks.
The notes are subject to market risk
The return on the notes is directly linked to the performance of the reference asset and indirectly linked to the
performance of the reference asset constituent stocks, and the extent to which the percentage change is positive or negative. The level of the reference asset can rise or fall sharply due to factors specific to the reference asset constituent stocks,
as well as general market factors, such as general market volatility and levels, interest rates and economic and political conditions.
The participation rate applies only at maturity
You should be willing to hold your notes to maturity. If you are able to sell your notes prior to maturity in the
secondary market, the price you receive will likely not reflect the full economic value of the participation rate or the notes themselves, and the return you realize may be less than the percentage change multiplied by the participation rate even if
such return is positive and less than the maximum payment amount. You may receive the full benefit of the participation rate only if you hold your notes to maturity.
The payment at maturity is not linked to the level of the reference asset at any time other than the valuation date (except
in the case of tax redemptions)
The payment at maturity will be based on the final level. Therefore, for example, if the closing level of the
reference asset declined substantially as of the valuation date compared to the trade date, the payment at maturity may be significantly less than it would otherwise have been had the payment at maturity been linked to the closing levels of the
reference asset prior to the valuation date. Although the actual level of the reference asset at maturity or at other times during the term of the notes may be higher than the final level, you will not benefit from the closing levels of the
reference asset at any time other than the valuation date (except in the case of tax redemptions as described further in the accompanying product prospectus supplement).
P-17
If the levels of the reference asset or the reference asset constituent stocks change, the market value of your notes
may not change in the same manner
Your notes may trade quite differently from the performance of the reference asset or the reference asset
constituent stocks. Changes in the levels of the reference asset or the reference asset constituent stocks may not result in a comparable change in the market value of your notes. We discuss some of the reasons for this disparity under "—The
price at which the notes may be sold prior to maturity will depend on a number of factors and may be substantially less than the amount for which they were originally purchased" below.
Holding the notes is not the same as holding the reference asset constituent stocks
Holding the notes is not the same as holding the reference asset constituent stocks. As a holder of the notes, you will
not be entitled to the voting rights or rights to receive dividends or other distributions or other rights that holders of the reference asset constituent stocks would enjoy. Further, the return on your notes may not reflect the return you would
realize if you actually owned the reference asset constituent stocks. For instance, you will not benefit from any positive percentage change in excess of the cap on appreciation of the reference asset set by the maximum payment amount.
There is no assurance that the investment view implicit in the notes will be successful
It is impossible to predict with certainty whether and the extent to which the level of the reference asset will rise
or fall. There can be no assurance that the level of the reference asset will rise above the initial level or that the percentage decline from the initial level to the final level will not be greater than the buffer percentage. The final level may be
influenced by complex and interrelated political, economic, financial and other factors that affect the level of the reference asset constituent stocks. You should be willing to accept the risks of the price performance of equity securities in
general and the reference asset constituent stocks in particular, foreign exchange markets in general and the risk of losing some or all of your initial investment.
Furthermore, we cannot give you any assurance that the future performance of the reference asset or the reference
asset constituent stocks will result in your receiving an amount greater than or equal to the principal amount of your notes. Certain periods of historical performance of the reference asset or the reference asset constituent stocks would have
resulted in you receiving less than the principal amount of your notes if you had owned notes with terms similar to these notes in the past. See "Information Regarding The Reference Asset" in this pricing supplement for further information regarding
the historical performance of the reference asset.
There is no assurance as to the performance of the reference asset or the reference asset constituent stocks; past
performance of the reference asset or the reference asset constituent stocks should not be taken as an indication of the future performance of the reference asset or the reference asset constituent stocks
The notes are linked directly to the level of the reference asset and indirectly to the levels of the reference asset
constituent stocks, which are speculative and involve a high degree of risk. None of the Bank, the calculation agent, or SCUSA or any other affiliate of the Bank gives any assurance as to the performance of the reference asset or the reference asset
constituent stocks. Investors should not conclude that the sale by the Bank of the notes is an investment recommendation by it or by any of the other entities mentioned above to invest in securities linked to the performance of the reference asset
or the reference asset constituent stocks. Investors should consult with their own financial advisors as to whether an investment in the notes is appropriate for them. Past performance of the reference asset and the reference asset constituent
stocks should not be taken as a guarantee or assurance of the future performance of the reference asset or the reference asset constituent stocks, and it is impossible to predict whether the level of the reference asset or the reference asset
constituent stocks will rise or fall during the term of the notes.
The reference asset reflects price return only and not total return
The return on your notes is based on the performance of the reference asset, which reflects the changes in the market
prices of the reference asset constituent stocks. It is not, however, linked to a ''total return'' index or strategy, which, in addition to reflecting those price returns, would also reflect dividends paid on the reference asset constituent stocks.
The return on your notes will not include such a total return feature or dividend component.
We may sell an additional aggregate principal amount of the notes at a different issue price
We may decide to sell an additional aggregate principal amount of the notes subsequent to the date of this pricing
supplement. The issue price of the notes in the subsequent sale may differ substantially (higher or lower) from the original issue price you paid as provided on the cover of this pricing supplement.
P-18
Changes affecting the reference asset could have an adverse effect on the value of the notes
The policies of the sponsor concerning additions, deletions and substitutions of the reference asset constituent
stocks and the manner in which the sponsor takes account of certain changes affecting those reference asset constituent stocks may adversely affect the level of the reference asset. The policies of the sponsor with respect to the calculation of the
reference asset could also adversely affect the level of the reference asset. The sponsor may discontinue or suspend calculation or dissemination of the reference asset. Any such actions could have a material adverse effect on the value of the
notes.
The Bank cannot control actions by the sponsor and the sponsor has no obligation to consider your interests
The Bank and its affiliates are not affiliated with the sponsor and have no 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 reference asset. The 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 negatively affect the market value of your notes.
The notes are subject to non-U.S. securities market risk
The reference asset is subject to risks associated with non-U.S. securities markets, specifically the regions of
Europe, Asia, Australia and the Far East. An investment in the notes linked directly or indirectly to the value of securities issued by non-U.S. companies involves particular risks. Generally, non-U.S. securities markets may be more volatile than
U.S. securities markets, and market developments may affect non-U.S. markets differently from U.S. securities markets. Direct or indirect government intervention to stabilize these non-U.S. markets, as well as cross shareholdings in non-U.S.
companies, may affect trading prices and volumes in those markets. There is generally less publicly available information about non-U.S. companies than about those U.S. companies that are subject to the reporting requirements of the SEC, and non-U.S.
companies are subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting companies. Securities prices in non-U.S. countries are subject to political, economic, financial and
social factors that may be unique to the particular country. These factors, which could negatively affect the non-U.S. securities markets, include the possibility of recent or future changes in the non-U.S. government's economic and fiscal policies,
the possible imposition of, or changes in, currency exchange laws or other non-U.S. laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities and the possibility of fluctuations in the rate of exchange between
currencies. The United Kingdom has voted to leave the European Union (popularly known as "Brexit"). The effect of Brexit is uncertain, and Brexit has and may continue to contribute to volatility in the prices of securities of companies located in
Europe and currency exchange rates, including the valuation of the euro and British pound in particular. Moreover, certain aspects of a particular non-U.S. economy may differ favorably or unfavorably from the U.S. economy in important respects, such
as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.
The notes are subject to currency exchange risk
Because the prices of the reference asset constituent stocks of the reference asset are converted into U.S. dollars by
the sponsor for the purposes of calculating the level of the reference asset, you will be exposed to currency exchange rate risk with respect to each of the currencies in which the reference asset constituent stocks trade. Your net exposure will
depend on the extent to which those currencies strengthen or weaken against the U.S. dollar and the relative weight of the reference asset constituent stocks denominated in each of those currencies. If, taking into account the relevant weighting, the
U.S. dollar strengthens against those currencies, the level of the reference asset will be adversely affected and consequently the payment at maturity of the notes, if any, may be reduced.
If you purchase your notes at a premium to the principal amount, the return on your investment will be lower than the
return on notes purchased at the principal amount and the impact of certain key terms of the notes will be negatively affected
The payment at maturity will not be adjusted based on the original issue price you pay for the notes. If you purchase
notes at a price that differs from the principal amount of the notes, then the return on your investment in such notes held to the maturity date will differ from, and may be substantially less than, the return on notes purchased at the principal
amount. If you purchase your notes at a premium to the principal amount and hold them to the maturity date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at the principal amount or at a
discount to the principal amount. In addition, the impact of the maximum payment amount and the buffer level on the return on your investment will depend upon the price you pay for your notes relative to the principal amount. For example, if you
purchase your notes at a premium to the principal amount, the maximum payment amount will only permit a lower positive return on
P-19
your investment in the notes than would have been the case for notes purchased at
the principal amount or a discount to the principal amount. Similarly, the buffer level, while still providing some protection for the return on the notes, will allow a greater percentage decrease in your investment in the notes than would have
been the case for notes purchased at the principal amount or a discount to the principal amount.
The price at which the notes may be sold prior to maturity will depend on a number of factors and may be substantially
less than the amount for which they were originally purchased
The price at which the notes may be sold prior to maturity will depend on a number of factors. Some of these factors include, but are not limited to: (i) actual or anticipated changes in the level of the reference asset over the full term of the notes, (ii) volatility of the level of
the reference asset and the market's perception of future volatility of the level of the reference asset, (iii) changes in interest rates generally, (iv) any actual or anticipated changes in our credit ratings or credit spreads and (v) time remaining
to maturity. In particular, because the provisions of the notes relating to the payment at maturity and the maximum payment amount behave like options, the value of the notes will vary in ways which are non-linear and may not be intuitive.
Depending on the actual or anticipated level of the reference asset and other relevant factors, the market value of
the notes may decrease and you may receive substantially less than 100% of the issue price if you sell your notes prior to maturity.
See "Additional Risk Factors Specific to the Notes—The Market Value of Your Notes May Be Influenced by Many
Unpredictable Factors" beginning on page PS-7 of the accompanying product prospectus supplement.
The notes lack 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 the Bank may, but are not obligated 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 significantly 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.
Hedging activities by the Bank 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 notesThe Bank, SCUSA or one or more of our other affiliates has hedged or expects to hedge the obligations under the notes
by purchasing futures and/or other instruments linked to the reference asset. The Bank, SCUSA or one or more of our other 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 reference asset and/or one or more of the reference asset constituent stocks, at any time and from time to time, and to unwind the hedge by selling any of the foregoing on or before the valuation date.
The Bank, SCUSA or one or more of our other 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 or price of the reference asset or the reference asset constituent stocks. Any of these hedging activities may adversely affect the level of the
reference asset—directly or indirectly by affecting the price of the reference asset constituent stocks—and therefore the market value of the notes and the amount you will receive, if any, on the notes. Furthermore, if the dealer from which you
purchase notes is to conduct hedging activities for us in connection with the notes, that dealer may profit in connection with such hedging activities and such profit, if any, will be in addition to the compensation that the dealer receives for the
sale of the notes to you. You should be aware that the potential to earn fees in connection with hedging activities may create a further incentive for the dealer to sell the notes to you in addition to the compensation they would receive for the sale
of the notes. In addition, you should expect that these transactions will cause the Bank, SCUSA or any of our other affiliates, or our 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 the Bank, 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 the Bank, SCUSA or any of our other affiliates may receive substantial returns with respect to these hedging activities while the value of the notes may decline.
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The Bank, SCUSA and our other affiliates regularly provide services to, or
otherwise have business relationships with, a broad client base, which has included and may include us and the issuers of the reference asset constituent stocks and the market activities by the Bank, SCUSA or our other affiliates for our own account or for our clients could negatively impact investors in the notes
We, SCUSA and our other 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, SCUSA and/or our other affiliates purchase, sell or hold a broad array of investments, actively trade securities
(including the notes or other securities that we have issued), the reference asset constituent stocks, currencies, derivatives, loans, credit default swaps, indices, baskets and other financial instruments
and products for our own accounts or for the accounts of our 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 reference 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 issuers of the reference asset
constituent stocks, 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 reference asset and the market for your notes,
and you should expect that our interests and those of SCUSA and/or our other affiliates, clients or counterparties, will at times be adverse to those of investors in the notes.
You should expect that we, SCUSA and our other affiliates, in providing these services, engaging in such transactions,
or acting for our own accounts, may take actions that have direct or indirect effects on the notes or other securities that we may issue, the reference asset constituent stocks or 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 the Bank, SCUSA or our other affiliates may have access to confidential material non-public
information about these parties that would not be disclosed to investors in the notes.
We, SCUSA and our other 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 reference asset constituent stocks or other securities or instruments similar to or linked to the foregoing.
Investors in the notes should expect that the Bank, SCUSA and our other affiliates offer securities, financial instruments, and other products that may compete with the notes for liquidity or otherwise.
Other investors in the notes may not have the same interests as you
The interests of other investors may, in some circumstances, be adverse to your interests. Other investors may make
requests or recommendations to us or SCUSA regarding the establishment of transactions on terms that are adverse to your interests, and investors in the notes are not required to take into account the interests of any other investor in exercising
remedies, voting or other rights in their capacity as noteholders. Further, other investors may enter into market transactions with respect to the notes, assets that are the same or similar to the notes, assets referenced by the notes (such as stocks
or stock indices) or other similar assets or securities which may adversely impact the market for or value of your notes. For example, an investor could take a short position (directly or indirectly through derivative transactions) in respect of
securities similar to your notes or in respect of the reference asset.
The calculation agent can postpone the valuation date for the notes if a market disruption event with respect to the
reference asset occurs
If the calculation agent determines, in its sole discretion, that, on a day that would otherwise be the valuation
date, a market disruption event with respect to the reference asset has occurred or is continuing for the reference asset, the valuation date will be postponed until the first following trading day on which no market disruption event occurs or is
continuing, although the valuation date will not be postponed by more than seven scheduled trading days. Moreover, if the valuation date is postponed to the last possible day, but a market disruption event occurs or is continuing on that day, that
day will nevertheless be the valuation date, and the calculation agent will determine the applicable final level that must be used to determine the payment at maturity. See "General Terms of the Notes—Unavailability of the Level of the Reference
Asset on a Valuation Date" beginning on page PS-19 and "General Terms of the Notes—Market Disruption Events" beginning on page PS-20 in the accompanying product prospectus supplement.
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There is no affiliation between the issuers of any reference asset constituent stock or the sponsor and us or SCUSA
The Bank, SCUSA and our other affiliates may currently, or from time to time in the
future, engage in business with the issuers of the reference asset constituent stocks. Neither we nor any of our affiliates have participated in the preparation of any publicly available information or made any "due diligence" investigation or
inquiry with respect to the reference asset or the reference asset constituent stocks. Before investing in the notes you should make your own investigation into the reference asset and the issuers of the reference asset constituent stocks. See the section below entitled "Information Regarding the Reference Asset" in this pricing supplement for additional information about the reference asset.
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 "Certain Canadian Income Tax Consequences" and "Material U.S. Federal Income Tax Considerations" in this pricing supplement.
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|
INFORMATION REGARDING THE REFERENCE ASSET
|
The MSCI EAFE® Index
The reference asset is the MSCI EAFE® Index (Bloomberg ticker "MXEA"). All information contained in this
pricing supplement regarding the reference asset, including, without limitation, its makeup, method of calculation, and changes in its components, have been derived from publicly available sources. Additional information on the reference asset is
available on the MSCI website: www.msci.com. We are not incorporating by reference the website or any material included on that website in this pricing supplement. In this pricing supplement, unless the context requires otherwise, references to the
reference asset will include any successor index to the reference asset and references to MSCI will include any successor thereto. The information reflects the policies of, and is subject to change by MSCI. MSCI has no obligation to continue to
publish, and may discontinue publication of, the reference asset.
Description of the Reference Asset
The MSCI EAFE® Index is a stock index calculated, published and
disseminated daily by MSCI Inc., which we refer to as "MSCI", through numerous data vendors, on the MSCI website and in real time on Bloomberg and Reuters Limited.
The MSCI EAFE® Index is a free float adjusted market capitalization
index and is part of the MSCI Global Investable Market Indices, the methodology of which is described below. The index is considered a “standard” index, which means it consists of all eligible large capitalization and mid-capitalization stocks, as
determined by MSCI, in the relevant market. Additional information about the MSCI Global Investable Market Indices is available on the following website: msci.com. We are
not incorporating by reference these websites, the sources listed above or any material they include in this pricing supplement.
The MSCI EAFE® Index is intended to provide performance benchmarks
for the developed equity markets in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United
Kingdom. The constituent stocks of the MSCI EAFE® Index are derived from the constituent stocks in the 21 MSCI standard single country indices for the developed market countries listed above. The MSCI EAFE® Index is calculated
in U.S. dollars. The MSCI EAFE® Index has a base date of December 31, 1969.
Index Stock Weighting by Country
as of January 31, 2019
|
Country:
|
Percentage (%)*
|
|
France
|
11.02%
|
|
Germany
|
8.80%
|
|
Japan
|
24.66%
|
|
Switzerland
|
8.61%
|
|
United Kingdom
|
16.98%
|
|
Other
|
29.93%
|
*Information provided by MSCI. Percentages may not sum to 100% due to rounding.
MSCI divides the companies included in the MSCI EAFE® Index into eleven
Global Industry Classification Sectors: Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate and Utilities.
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Index Stock Weighting by Sector
as of January 31, 2019
|
Sector**
|
Percentage (%)*
|
|
Communication Services
|
5.53%
|
|
Consumer Discretionary
|
11.30%
|
|
Consumer Staples
|
11.37%
|
|
Energy
|
5.90%
|
|
Financials
|
19.33%
|
|
Health Care
|
11.01%
|
|
Industrials
|
14.37%
|
|
Information Technology
|
6.09%
|
|
Materials
|
7.48%
|
|
Real Estate
|
3.84%
|
|
Utilities
|
3.77%
|
*Information provided by MSCI. Percentages may not sum to 100% due to rounding.
**Sector designations are determined by the 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. As of the close of business on September 21, 2018, MSCI and S&P Dow Jones
Indices LLC updated the Global Industry Classification Sector structure. Among other things, the update broadened the Telecommunications Services sector and renamed it the Communication Services sector. The renamed sector includes the previously
existing Telecommunication Services Industry group, as well as the Media Industry group, which was moved from the Consumer Discretionary sector and renamed the Media & Entertainment Industry group. The Media & Entertainment Industry group
contains three industries: Media, Entertainment and Interactive Media & Services. The Media industry continues to consist of the Advertising, Broadcasting, Cable & Satellite and Publishing sub-industries. The Entertainment industry contains
the Movies & Entertainment sub-industry (which includes online entertainment streaming companies in addition to companies previously classified in such industry prior to September 21, 2018) and the Interactive Home Entertainment sub-industry
(which includes companies previously classified in the Home Entertainment Software sub-industry prior to September 21, 2018 (when the Home Entertainment Software sub-industry was a sub-industry in the Information Technology sector)), as well as
producers of interactive gaming products, including mobile gaming applications). The Interactive Media & Services industry and sub-industry includes companies engaged in content and information creation or distribution through proprietary
platforms, where revenues are derived primarily through pay-per-click advertisements, and includes search engines, social media and networking platforms, online classifieds and online review companies. The Global Industry Classification Sector
structure changes were effective for the MSCI EAFE® Index as of the open of business on December 3, 2018 to coincide with the November 2018 semi-annual index review.
Construction of the MSCI EAFE® Index
MSCI undertakes an index construction process, which involves: (i) defining the equity universe; (ii) determining the
market investable equity universe for each market; (iii) determining market capitalization size segments for each market; (iv) applying index continuity rules for the standard index; (v) creating style segments within each size segment within each
market; and (vi) classifying securities under the Global Industry Classification Standard. The index construction methodology differs in some cases depending on whether the relevant market is considered a developed market or an emerging market. The
MSCI EAFE® Index is a developed market index. The MSCI EAFE® Index is a standard index, meaning that only securities that would qualify for inclusion in a large cap index or a mid cap index will be included as described below.
Defining the Equity Universe
(i) Identifying Eligible Equity Securities: The equity universe initially looks at securities listed in any of
the countries in the MSCI Global Index series, which will be classified as either "developed markets" or "emerging markets". All listed equity securities, including real estate investment trusts and certain income trusts in Canada are eligible for
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inclusion in the equity universe. Limited partnerships, limited liability companies and business trusts, which are listed in the U.S. and
are not structured to be taxed as limited partnerships, are likewise eligible for inclusion in the equity universe. Conversely, mutual funds, exchange traded funds, equity derivatives and most investment trusts are not eligible for inclusion in
the equity universe. Preferred shares that exhibit characteristics of equity securities are eligible. Securities for which the Hong Kong Securities and Futures Commission has issued high shareholding concentration notices are not eligible.
(ii) Country Classification of Eligible Securities: Each company and its securities (i.e., share classes) are classified in one and only one country, which allows for a distinctive sorting of each company by its respective country.
Determining the Market Investable Equity Universes
A market investable equity universe for a market is derived by (i)
identifying eligible listings for each security in the equity universe; and (ii) applying investability screens to individual companies and securities in the equity universe that are classified in that market. A market is generally equivalent to
a single country. The global investable equity universe is the aggregation of all market investable equity universes.
(i) Identifying Eligible Listings: A security may have a listing in the country where it is classified (a "local listing") and/or in a different country (a "foreign
listing"). A security may be represented by either a local listing or a foreign listing (including a depositary receipt) in the global investable equity universe. A security may be represented by a foreign listing only if the security is
classified in a country that meets the foreign listing materiality requirement (as described below), and the security's foreign listing is traded on an eligible stock exchange of a developed market country if the security is classified in a
developed market country or, if the security is classified in an emerging market country, an eligible stock exchange of a developed market country or an emerging market country.
In order for a country to meet the foreign listing materiality requirement,
MSCI determines all securities represented by a foreign listing that would be included in the country's MSCI Country Investable Market Index if foreign listings were eligible from that country. The aggregate free-float adjusted market
capitalization for all such securities should represent at least (i) 5% of the free float-adjusted market capitalization of the relevant MSCI Country Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the
MSCI ACWI Investable Market Index. If a country does not meet the foreign listing materiality requirement, then securities in that country may not be represented by a foreign listing in the global investable equity universe.
(ii) Applying Investability
Screens: The investability screens used to determine the investable equity universe in each market are:
(a) Equity Universe Minimum Size Requirement: This investability screen is applied at the
company level. In order to be included in a market investable equity universe, a company must have the required minimum full market capitalization. The equity universe minimum size requirement applies to companies in all markets and is derived as
follows:
· First, the companies in the developed market
equity universe are sorted in descending order of full market capitalization and the cumulative coverage of the free float-adjusted market capitalization of the developed market equity universe is calculated for each company. Each company's free
float-adjusted market capitalization is represented by the aggregation of the free float-adjusted market capitalization of the securities of that company in the equity universe.
· Second, when the cumulative free float-adjusted market capitalization coverage of 99% of the sorted equity universe is achieved, by adding each company's free float-adjusted
market capitalization in descending order, the full market capitalization of the company that reaches the 99% threshold defines the equity universe minimum size requirement.
· The rank of this company by descending order of full market capitalization within the developed market equity universe is noted, and will be used in determining the equity
universe minimum size requirement at the next rebalance.
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As of November 2017, the equity universe minimum size requirement was set at US$261,000,000. Companies with a full
market capitalization below this level are not included in any market investable equity universe. The equity universe minimum size requirement is reviewed and, if necessary, revised at each semi-annual index review, described below.
(b) Equity Universe Minimum Free Float-Adjusted Market Capitalization
Requirement: This investability screen is applied at the individual security level. To be eligible for inclusion in a market investable equity universe, a security must have a free float-adjusted market capitalization equal to or higher than 50%
of the equity universe minimum size requirement.
(c) Minimum Liquidity Requirement: This investability screen is applied
at the individual security level. To be eligible for inclusion in a market investable equity universe, a security must have at least one eligible listing that has adequate liquidity as measured by its 12-month and 3-month annualized traded value
ratio. This measure attempts to mitigate the impact of extreme daily trading volumes and takes into account the free float-adjusted market capitalization of securities. A minimum liquidity level of 20% of the 3-month annualized trade value ratio
and 90% of 3-month frequency of trading over the last 4 consecutive quarters, as well as 20% of the 12-month annualized trade value ratio, are required for inclusion of a security in a market investable equity universe of a developed market.
Only one listing per security may be included in the market investable equity
universe. In instances where a security has two or more eligible listings that meet the above liquidity requirements, then the following priority rules are used to determine which listing will be used for potential inclusion of the security in the
market investable equity universe:
(1) Local
listing (if the security has two or more local listings, then the listing with the highest 3-month ATVR will be used).
(2) Foreign listing in the same geographical region (MSCI
classifies markets into three main geographical regions: EMEA, Asia Pacific and Americas. If the security has several listings in the same geographical region, then the listing with the highest 3-month ATVR will be used).
(3) Foreign listing in a different geographical region (if the
security has several listings in a different geographical region, then the listing with the highest 3-month ATVR will be used).
Due to liquidity concerns relating to securities trading at very high stock
prices, a security that is currently not a constituent of a MSCI Global Investable Markets Index that is trading at a stock price above US$10,000 will fail the liquidity screening and will not be included in any market investable equity universe.
(d) Global Minimum Foreign Inclusion Factor Requirement: This investability screen is applied at the individual
security level. To determine the free float of a security, MSCI considers the proportion of shares of such security available for purchase in the public equity markets by international investors. In practice, limitations on the investment
opportunities for international investors include: strategic stakes in a company held by private or public shareholders whose investment objective indicates that the shares held are not likely to be available in the market; limits on the
proportion of a security’s share capital authorized for purchase by non-domestic investors; or other foreign investment restrictions which materially limit the ability of foreign investors to freely invest in a particular equity market,
sector or security.
MSCI will then derive a “foreign inclusion factor” for the company that reflects
the proportion of shares outstanding that is available for purchase in the public equity markets by international investors. MSCI will then “float-adjust” the weight of each constituent company in an index by the company’s foreign inclusion factor.
Typically, securities with a free float adjustment ratio of less than 0.15 will not be eligible for inclusion in the MSCI EAFE® Index.
Once the free float factor has been determined for a security, the security’s
total market capitalization is then adjusted by such free float factor, resulting in the free float-adjusted market capitalization figure for the security.
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(e) Minimum Length of Trading Requirement: This investability screen is applied at the individual security
level. For an initial public offering to be eligible for inclusion in a market investable equity universe, the new issue must have started trading at least three months before the implementation of a semi-annual index review. This requirement is
applicable to small new issues in all markets. Large initial public offerings are not subject to the minimum length of trading requirement and may be included in a market investable equity universe and a standard index, such as the MSCI EAFE®
Index, outside of a quarterly or semi-annual index review.
(f) Minimum Foreign Room Requirement: This investability screen is
applied at the individual security level. For a security that is subject to a foreign ownership limit to be eligible for inclusion in a market investable equity universe, the proportion of shares still available to foreign investors relative to the
maximum allowed (referred to as “foreign room”) must be at least 15%.
Defining Market Capitalization Size Segments for Each
Market
Once a market investable equity universe is defined, it is segmented into the following size-based
indices:
· Investable Market Index (Large Cap + Mid Cap + Small Cap)
· Standard Index (Large Cap + Mid Cap)
· Large Cap Index
· Mid Cap Index
· Small Cap Index
Creating the size segment indices in each market involves the following steps: (i) defining the market coverage target
range for each size segment; (ii) determining the global minimum size range for each size segment; (iii) determining the market size segment cutoffs and associated segment number of companies; (iv) assigning companies to the size segments; and
(v) applying final size-segment investability requirements. For developed market indices, the market coverage for a standard index is 85%. As of November 2017, the global minimum size range for a developed market standard index is a full market
capitalization of USD 3.05 billion to USD 7.02 billion.
Index Continuity Rules for Standard Indices
In order to achieve index continuity, as well as provide some basic level of diversification within a
market index, notwithstanding the effect of other index construction rules, a minimum number of five constituents will be maintained for a developed market standard index and a minimum number of three constituents will be maintained for an emerging
market standard index, and involves the following steps:
· If after the application of the index construction methodology, a developed market standard index contains
fewer than five securities or an emerging market standard index contains fewer than three securities, then the largest securities by free float-adjusted market capitalization are added to the index in order to reach the minimum number of required
constituents.
· At subsequent index reviews, if the minimum number of securities described above is not met, then after the
market investable equity universe is identified, the securities are ranked by free float-adjusted market capitalization, however, in order to increase stability the free float-adjusted market capitalization of the existing index
constituents (prior to review) is multiplied by 1.50, and securities are added until the desired minimum number of securities is reached.
All securities in the investable equity universe are classified into value or
growth segments. The classification of a security into the value or growth segment is used by MSCI to construct additional indices.
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Classifying Securities under the Global Industry
Classification Standard
All securities in the global investable equity
universe are assigned to the industry that best describes their business activities. The GICS classification of each security is used by MSCI to construct additional indices.
Calculation Methodology for the MSCI EAFE® Index
Price Return Methodology
The performance of the MSCI EAFE® Index is a free float weighted average of the U.S. dollar values of its
component securities.
Prices used to calculate the component securities are the official exchange closing prices or prices accepted as such in the relevant
market. In the case of a market closure, or if a security does not trade on a specific day or during a specific period, MSCI carries forward the previous day's price (or latest available closing price). In the event of a market outage resulting in
any component security price to be unavailable, MSCI will generally use the last reported price for such component security for the purpose of performance calculation unless MSCI determines that another price is more appropriate based on the
circumstances. Closing prices are converted into U.S. dollars, as applicable, using the closing spot exchange rates calculated by WM/Reuters at 4:00 P.M. London Time.
Maintenance of the MSCI EAFE® Index
In order to maintain the representativeness of the MSCI EAFE® Index, structural changes to the index as a
whole may be made by adding or deleting component securities. Currently, such changes in the MSCI EAFE® Index may generally only be made on four dates throughout the year: after the close of the last business day of each February, May,
August and November.
Each country index is maintained with the objective of reflecting, on a timely basis, the evolution of the underlying
equity markets. In maintaining each component country index, emphasis is also placed on its continuity, continuous investability of constituents and replicability of the index and on index stability and minimizing turnover.
MSCI classifies index maintenance in three broad categories. The first consists of ongoing event
related changes, such as mergers and acquisitions, which are generally implemented in the country indices in which they occur. The second category consists of quarterly index reviews, aimed at promptly reflecting other significant market events. The
third category consists of semi-annual index reviews that systematically re-assess the various dimensions of the equity universe.
Ongoing event-related changes to the country indices are the result of mergers, acquisitions,
spin-offs, bankruptcies, reorganizations and other similar corporate events. They can also result from capital reorganizations in the form of rights issues, stock bonus issues, public placements and other similar corporate actions that take place on
a continuing basis. MSCI will remove from the index as soon as practicable securities of companies that file for bankruptcy or other protection from their creditors, that are suspended and for which a return to normal business activity and trading is
unlikely in the near future, or that fail stock exchange listing requirements with a delisting announcement. Securities may also be considered for early deletion in other significant cases, such as decreases in free float and foreign ownership
limits, or when a constituent company acquires or merges with a non-constituent company or spins-off another company. In practice, when a constituent company is involved in a corporate event which results in a significant decrease in the company’s
free float-adjusted market capitalization or the company decreases its foreign inclusion factor to below 0.15, the securities of that constituent company are considered for early deletion from the indices simultaneously with the event unless, in
either case, it is a standard index constituent with a minimum free float-adjusted market capitalization that is not at least two-thirds of one-half of the standard index interim size segment cut-off. Share conversions may also give rise to an early
deletion. All changes resulting from corporate events are announced prior to their implementation, provided all necessary information on the event is available.
MSCI’s quarterly index review process is designed to ensure that the country indices continue to be an accurate
reflection of evolving equity markets. This goal is achieved by timely reflecting significant market driven changes that were not captured in each index at the time of their actual occurrence and that should not wait until the semi-annual
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index review due to their importance. These quarterly index reviews may result in additions and deletions of component securities from a
country index (or a security being removed from one country listing and represented by a different country listing) and changes in “foreign inclusion factors” and in number of shares. Additions and deletions to component securities may result from:
the addition of large companies that did not meet the minimum size criterion for inclusion at the time of their initial public offering or secondary offering; the replacement of companies which are no longer suitable industry representatives; the
deletion of securities whose overall free float has fallen to less than 15% and that do not meet specified criteria; the deletion of securities that have become very small or illiquid; and the addition or deletion of securities as a result of other
market events. Significant changes in free float estimates and corresponding changes in the foreign inclusion factor for component securities may result from: block sales, block buys, secondary offerings and transactions made by way of immediate
book-building that did not meet the requirements for implementation at the time of such event; corporate events that should have been implemented at the time of such event but could not be reflected immediately due to lack of publicly available
details at the time of the event; exercise of IPO over-allotment options which result in an increase in free float; increases in foreign ownership limits; decreases in foreign ownership limits which did not require foreign investors to immediately
sell shares in the market; re-estimates of free float figures resulting from the reclassification of shareholders from strategic to non-strategic, and vice versa; the end of lock-up periods or expiration of loyalty incentives for
non-strategic shareholders; conversion of a non-index constituent share class or an unlisted line of shares which has an impact on index constituents; and acquisition by shares of non-listed companies or assets. However, no changes in foreign
inclusion factors are implemented for any of the above events if the change in free float estimate is less than 1%, except in cases of correction. Small changes in the number of shares resulting from, for example, exercise of options or warrants,
conversion of convertible bonds or other instruments, conversion of a non-index constituent share class or an unlisted line of shares which has an impact on index constituents, periodic conversion of a share class into another share class, exercise
of over-allotment options, exercise of share buybacks, or the cancellation of shares, are generally updated at the quarterly index review rather than at the time of the event. The results of the quarterly index reviews are announced at least two
weeks in advance of their effective implementation dates as of the close of the last business day of February and August. MSCI has noted that consistency is a factor in maintaining each component country index.
MSCI's semi-annual index review is designed to systematically reassess the component securities of the index. During each
semi-annual index review, the universe of component securities is updated and the global minimum size range for the index is recalculated, which is based on the full market capitalization and the cumulative free float-adjusted market capitalization
coverage of each security that is eligible to be included in the index. The following index maintenance activities, among others, are undertaken during each semi-annual index review: the list of countries in which securities may be represented by
foreign listings is reviewed; the component securities are updated by identifying new equity securities that were not part of the index at the time of the previous quarterly index review; the minimum size requirement for the index is updated and
new companies are evaluated relative to the new minimum size requirement; existing component securities that do not meet the minimum liquidity requirements of the index may be removed (or, with respect to any such security that has other listings,
a determination is made as to whether any such listing can be used to represent the security in the market investable universe); and changes in "foreign inclusion factors" are implemented (provided the change in free float is greater than 1%,
except in cases of correction). During a semi-annual index review, component securities may be added or deleted from a country index for a range of reasons, including the reasons discussed with respect to component securities changes during
quarterly index reviews as discussed above. Foreign listings may become eligible to represent securities only from the countries that met the foreign listing materiality requirement during the previous semi-annual index review (this requirement is
applied only to countries that do not yet include foreign listed securities). Once a country meets the foreign listing materiality requirement at a given semi-annual index review, foreign listings will remain eligible for such country even if the
foreign listing materiality requirements are not met in the future.
The results of the semi-annual index reviews are announced at least two weeks in advance of their
effective implementation date as of the close of the last business day of May and November.
Index maintenance also includes monitoring and completing adjustments for share changes, stock splits, stock
dividends, and stock price adjustments due to company restructurings or spin-offs.
These guidelines
and the policies implementing the guidelines are the responsibility of, and, ultimately, subject to adjustment by, MSCI.
P-29
License Agreement with MSCI Inc. ("MSCI").
We have entered into a non-exclusive licensing agreement with MSCI, which allows us and our affiliates, in exchange for a
fee, to use the MSCI EAFE® Index in connection with the issuance of certain securities, including the notes. We are not affiliated with MSCI; the only relationship between MSCI and us is the licensing of the use of the MSCI EAFE®
Index and trademarks related to the MSCI EAFE® Index. All rights to the MSCI EAFE® Index are owned by MSCI, the publisher of the MSCI EAFE® Index.
THE NOTES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. ("MSCI"), ANY AFFILIATE OF MSCI OR ANY OTHER PARTY INVOLVED IN, OR
RELATED TO, MAKING OR COMPILING ANY MSCI INDEX. THE MSCI INDICES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND ARE LICENSED FOR USE FOR CERTAIN PURPOSES BY THE GOLDMAN SACHS
GROUP, INC. AND ARE EXPECTED TO BE SUBLICENSED TO THE BANK OF NOVA SCOTIA (COLLECTIVELY, THE "LICENSEE"). NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE NOTES OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN FINANCIAL SECURITIES GENERALLY OR IN THE NOTES PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK
CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDICES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THE NOTES OR THE
ISSUER OR OWNER OF THE NOTES. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR OWNERS OF THE NOTES INTO CONSIDERATION IN
DETERMINING, COMPOSING OR CALCULATING THE MSCI INDICES. NEITHER MSCI, ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF,
PRICES AT, OR QUANTITIES OF THE NOTES TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE NOTES ARE REDEEMABLE FOR CASH. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, THE MAKING OR
COMPILING ANY MSCI INDEX HAS ANY OBLIGATION OR LIABILITY TO THE OWNERS OF THE NOTES IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE NOTES.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDICES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER
MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI, ANY
OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS OR COUNTERPARTIES, ISSUER OF THE NOTES, OWNERS
OF THE NOTES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR
RELATED TO, MAKING OR COMPILING ANY MSCI INDEX SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY
INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND MSCI, ANY OF ITS AFFILIATES AND ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX HEREBY EXPRESSLY
DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI, ANY OF ITS AFFILIATES OR ANY OTHER PARTY
INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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Historical Information
We obtained the information regarding the historical performance of the reference asset in the table and graph below from
Bloomberg. Bloomberg reports the closing level of the reference asset to fewer decimal places than the sponsor.
We have not undertaken an independent review or due diligence of the information. The historical performance of the reference asset should not
be taken as an indication of its future performance, and no assurance can be given as to the final level of the reference asset. We cannot give you assurance that the performance of the reference asset will result in any positive return on your
initial investment.
The following table sets forth the quarterly high and low closing levels for the reference asset, based on daily closing levels. The closing level of the
reference asset on February 5, 2019 was 1,846.97. Past performance of the reference asset is not indicative of the future performance of
the reference asset.
|
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
|
1/1/2014
|
3/31/2014
|
1,940.23
|
1,796.86
|
1,915.69
|
|
4/1/2014
|
6/30/2014
|
1,992.69
|
1,882.24
|
1,972.12
|
|
7/1/2014
|
9/30/2014
|
1,995.49
|
1,846.08
|
1,846.08
|
|
10/1/2014
|
12/31/2014
|
1,848.79
|
1,714.64
|
1,774.89
|
|
1/1/2015
|
3/31/2015
|
1,900.90
|
1,697.01
|
1,849.34
|
|
4/1/2015
|
6/30/2015
|
1,949.49
|
1,842.46
|
1,842.46
|
|
7/1/2015
|
9/30/2015
|
1,894.42
|
1,609.50
|
1,644.40
|
|
10/1/2015
|
12/31/2015
|
1,779.25
|
1,654.98
|
1,716.28
|
|
1/1/2016
|
3/31/2016
|
1,716.28
|
1,492.43
|
1,652.04
|
|
4/1/2016
|
6/30/2016
|
1,716.51
|
1,520.94
|
1,608.45
|
|
7/1/2016
|
9/30/2016
|
1,734.72
|
1,573.30
|
1,701.69
|
|
10/1/2016
|
12/31/2016
|
1,704.84
|
1,614.17
|
1,684.00
|
|
1/1/2017
|
3/31/2017
|
1,812.06
|
1,676.93
|
1,792.98
|
|
4/1/2017
|
6/30/2017
|
1,916.37
|
1,774.47
|
1,883.19
|
|
7/1/2017
|
9/30/2017
|
1,981.49
|
1,874.10
|
1,973.81
|
|
10/1/2017
|
12/31/2017
|
2,050.79
|
1,971.41
|
2,050.79
|
|
1/1/2018
|
3/31/2018
|
2,186.65
|
1,989.61
|
2,005.67
|
|
4/1/2018
|
6/30/2018
|
2,066.80
|
1,938.95
|
1,958.64
|
|
7/1/2018
|
9/30/2018
|
2,011.48
|
1,905.44
|
1,973.60
|
|
10/1/2018
|
12/10/2018
|
1,970.26
|
1,683.36
|
1,719.88
|
|
1/1/2019
|
2/5/2019*
|
1,846.97
|
1,708.59
|
1,846.97
|
| * |
As of the date of this pricing supplement, available information for the first calendar quarter of 2019 includes data for the period from January 1,
2019 through February 5, 2019. Accordingly, the ‘‘Quarterly High,’’ ‘‘Quarterly Low’’ and ‘‘Quarterly Close’’ data indicated are for this shortened period only and do not reflect complete data for the first calendar quarter of 2019.
|
P-31
The graph below illustrates the performance of the reference asset from January 1, 2009 through February 5, 2019. Past performance of the reference asset is not indicative of the future performance of the reference asset.
Historical Performance of The MSCI EAFE® Index
P-32
|
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
|
SCUSA, our affiliate, will purchase the notes at the principal amount and, as part of the distribution of the notes,
will sell the notes to certain unaffiliated securities dealers at the original issue price specified on the cover hereof. In addition, SCUSA and our other affiliates or agents may use the accompanying product prospectus supplement to which this pricing
supplement relates in market-making transactions after the initial sale of the notes. While SCUSA may make markets in the notes, they are under no obligation to do so and may discontinue any market-making activities at any time without notice. See the
sections titled "Supplemental Plan of Distribution (Conflicts of Interest)" in the accompanying prospectus supplement and accompanying product prospectus supplement.
The price at which you purchase the notes includes costs that the Bank, SCUSA or our other affiliates expect to incur and profits that the
Bank, SCUSA and our other affiliates expect to realize in connection with hedging activities related to the notes, as set forth above. These costs and profits will likely reduce the secondary market price, if any secondary market develops, for the
notes. As a result, you may experience an immediate and substantial decline in the market value of your notes on the original issue date.
Conflicts of interest
Each of SCUSA and Scotia Capital Inc. is an affiliate of the Bank and, as such, has a ''conflict of interest'' in this
offering within the meaning of FINRA Rule 5121. In addition, the Bank will receive the gross proceeds from the initial public offering of the notes, thus creating an additional conflict of interest within the meaning of Rule 5121. Consequently, the
offering is being conducted in compliance with the provisions of Rule 5121. Neither SCUSA nor Scotia Capital Inc. is permitted to sell notes in this offering to an account over which it exercises discretionary authority without the prior specific
written approval of the account holder.
SCUSA and our other affiliates are full service financial institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. SCUSA and our other affiliates have, from time to time,
performed, and may in the future perform, various financial advisory and investment banking services for the Bank, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, SCUSA and our other affiliates may make or hold a broad
array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities
activities may involve securities and/or instruments of the Bank. SCUSA and our other affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any
time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Prohibition of Sales to EEA Retail Investors
The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available
to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU, as amended (“MiFID II”);
(ii) a customer within the meaning of Directive 2002/92/EC, as amended, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive
2003/71/EC, as amended. Consequently no key information document required by Regulation (EU) No 1286/2014, as amended (the “PRIIPs Regulation”), for offering or selling the notes or otherwise making them available to retail investors in the EEA has
been prepared and therefore offering or selling the notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
P-33
|
CERTAIN CANADIAN INCOME TAX CONSEQUENCES
|
See “Supplemental Discussion of Canadian Tax Consequences” on page PS-27 of the accompanying product prospectus supplement.
|
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
|
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. 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. Some of these tax consequences are summarized below, but we urge you to read the more detailed discussion under “Material U.S. Federal Income Tax
Consequences” in the product prospectus supplement and to discuss the tax consequences of your particular situation with your tax advisor. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and
proposed U.S. Treasury Department (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.
U.S. Tax Treatment. Pursuant to the terms of the notes, the Bank and you agree, in the absence of a statutory or regulatory
change or an administrative determination or judicial ruling to the contrary, to characterize your notes as prepaid derivative contracts with respect to the reference asset. If your notes are so treated, you should generally recognize 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 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 (otherwise such gain or loss should be short-term capital gain or loss if held for one year or less). The deductibility of capital losses is subject to limitations.
Based on certain factual representations received from us, our special U.S. tax counsel, Cadwalader,
Wickersham & Taft LLP, is of the opinion that it would be reasonable to treat your 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, such that the timing and character of your income from the notes could differ materially and adversely
from the treatment described above.
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, and they are seeking taxpayer comments on the subject. 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 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.
Section 1297. We will not attempt to ascertain whether any reference asset constituent
stock would be treated as a “passive foreign investment company” (a “PFIC”) within the meaning of Section 1297 of the Code. If any such entity were so treated, certain adverse U.S. federal income tax consequences might apply upon the sale,
exchange, redemption or maturity of a note. You should refer to information filed with the SEC or the equivalent governmental authority by such entities and consult your tax advisor regarding the possible consequences to you if any such entity is
or becomes a PFIC.
P-34
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 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 with
respect to their investment in the notes.
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.
If you are a non-U.S. holder, subject to Section 871(m) of the Code and FATCA, discussed below, you should generally not be subject to U.S. withholding tax with respect to payments on your notes or to generally applicable information reporting and
backup withholding requirements with respect to payments on your notes if you comply with certain certification and identification requirements as to your non-U.S. status including providing us (and/or the applicable withholding agent) a properly
executed and fully completed applicable IRS Form W-8. Subject to Section 871(m) of the Code, as discussed below, gain from taxable disposition of the notes generally will not be subject to U.S. tax unless (i) such gain is effectively connected with
a trade or business conducted by you in the U.S., (ii) you are a non-resident alien individual and are present in the U.S. for 183 days or more during the taxable year of such taxable disposition and certain other conditions are satisfied or (iii)
you have certain other present or former connections with the U.S.
Section 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, 2021.
Based on our determination that the notes are not “delta-one” with respect to the reference asset or any U.S. reference
asset constituent stocks, 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 made upon issuance of the notes. If withholding is required, we will not make payments
of any additional amounts.
Nevertheless, after issuance, it is possible
that your notes could be deemed to be reissued for tax purposes upon the occurrence of certain events affecting the reference asset, any U.S. reference asset constituent stocks 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
you enter, or have entered, into certain other transactions in respect of the reference asset, any U.S. reference asset constituent stocks or the notes. If you enter, or have entered, into other transactions in respect of the reference asset, any
U.S. reference asset constituent stocks or the notes, you should consult your tax advisor regarding the application of Section 871(m) of the Code to your notes in the context of your 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.
P-35
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.
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 own 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.
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 will 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 impossible 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 should consult their tax advisors regarding the U.S. federal income tax consequences of an
investment in the notes, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction (including that of the Bank and those of the issuers of the reference asset constituent stocks).
P-36