Which transaction type must not be covered by a new issue?

The reasoning behind the correct choice lies in the nature of different securities transactions and their relationship to new issues in the market.

Follow-on offerings, which involve the issuance of additional shares by a company that is already publicly traded, can be considered separate from the concept of a "new issue." A new issue typically refers to the first time securities are made available to the public, such as in an initial public offering (IPO). Once a company is public, any additional shares sold do not fit the criteria of a new issue; instead, they are simply additional offerings of existing securities.

In contrast, initial public offerings are entirely new issues since they entail a company making its stock available to the public for the first time. Private placements involve the sale of securities directly to a select group of investors (like institutions) and also fall outside the realm of what constitutes a new public issue. Preferred stock sales may also relate to new issues depending on whether they are newly issued shares or existing ones being sold.

Thus, while initial public offerings, private placements, and preferred stock sales can include new issues, follow-on offerings do not create new original shares in the same context, making them the correct answer since they must not be covered by a new issue.