Series 10 Practice Exam 2026 – Complete Guide for Securities Sales Supervisor Prep

The situation described involves a registered representative purchasing a new common stock issue directly from the underwriter, which can lead to violations of FINRA Rule 5130. This rule is designed to protect the integrity of the public offering process by preventing certain types of misconduct related to new issues.

FINRA Rule 5130 specifically addresses the conditions under which a registered person, such as a representative, can participate in the purchase of new equity issues. The rule prohibits broker-dealers and their personnel from buying shares in a new offering if they are deemed "restricted persons." These include individuals associated with broker-dealers, immediate family members of restricted individuals, and other entities that could potentially manipulate the market or create conflicts of interest.

By directly purchasing a new stock issue from the underwriter, the registered representative would be violating this rule because they are considered a restricted person. Consequently, both the representative and their firm would be in violation of the rule, as firms are responsible for ensuring their employees adhere to these regulations.

Thus, the correct choice captures the dual accountability of both the representative and the firm under this regulatory framework, underscoring the importance of compliance with FINRA rules to maintain market fairness and protect investors.