The trap in halal screening of ADR stocks (TSM, BABA…)

TSMC, Alibaba, Novo Nordisk, Sony — these companies trade on US exchanges but aren't US companies. In New York their shares trade as ADRs. For halal screening this is not a minor technicality: our own screener got it wrong here several times. This article explains openly how we went wrong and how we guard against it now.

What is an ADR

In the definition of the US Securities and Exchange Commission (SEC), an ADR is a security representing shares of a non-US company held by a US depositary bank. The key point: one ADR (ADS) does not have to equal one ordinary share. It can represent several shares or a fraction of one, so that the price suits the US market (SEC Investor Bulletin).

That creates two problems:

• Currency. The ADR price is in dollars, while the company reports in its own currency — Taiwan dollars, yuan, yen, kronor.
• Ratio. Market cap = price × share count. If the dollar ADS price is multiplied by the number of ordinary shares, the market cap is off by the ratio.

In halal screening, market capitalisation is the denominator of two of the three financial ratios (debt ÷ market cap and cash ÷ market cap). Get the denominator wrong and the verdict is wrong.

Trap 1: a market cap a thousand times too big

Our data provider (Yahoo) computes the market cap of some ADRs as local share count × ADR price. A case we measured: for LATAM Airlines (LTM) the market cap came out at over $30 trillion — several times the world's largest company. The real value was around $16 billion.

This wasn't just a wrong number: with a denominator a thousand times too large, the debt ratio showed as 0.04% and the stock sat in our database as "halal". No error was raised — just a silently false verdict.

Fix (August 2026): an implausibly large market cap is now discarded as unreliable and the ratios are not computed — the result is "undetermined". We don't try to "correct" the cap approximately: a correction based on an unknown ratio would just be another false number.

Trap 2: currency — the error in the other direction

The second error did the opposite — it rejected halal companies without reason. The provider reports the balance sheet (debt, cash) in the reporting currency, while the market cap is in dollars. We had divided one by the other directly.

Example: TSMC (TSM) reports its debt in Taiwan dollars, while its market cap is in US dollars. The debt ratio came out at 88% — in reality a few percent. The same happened to companies like ASE Technology, UMC and Novo Nordisk.

We found this by comparing our list with the holdings of a halal ETF (SP Funds): several of the disagreements came down to exactly this. More on ETFs: Halal ETFs.

Fix (September 27, 2026): each company's reporting currency is now stored, and debt, cash and interest-bearing securities are converted to dollars at the current rate. If the rate can't be fetched, the screen is retried later — no unconverted ratio is written. The income ratio (interest income ÷ revenue) is unchanged: both are in the same currency.

After that, a number of foreign companies were re-screened; some returned to the halal list, others are now judged on their real reasons — for example Alibaba (BABA). On September's wave of changes: September 2026: halal list changes.

Trap 3: when the ADS ratio changes quietly

The subtlest case is a company changing its ADS ratio. Hesai (HSAI) moved to 1 ADS = 8 shares on July 10, 2026. The ADS count didn't change and no split was recorded — but the provider computed the market cap with the ordinary share count, showing it roughly 8 times too large. The cash ratio came out several times too low, creating a risk of a false "halal".

This can't be detected automatically, so we added a manually maintained table of ADR ratios (October 1, 2026):

• each record holds the ratio, its effective date, an approximate ADS count and the source;
• the screener doesn't apply the ratio blindly: it reads the provider's number two ways — "already ADS" and "ordinary shares ÷ ratio" — and takes whichever is closer to the recorded ADS count. If the provider fixes its own error, we don't divide twice;
• if neither matches, the market cap is unreliable and the result is "undetermined";
• a record goes stale after 180 days, or goes back for review if a split is recorded after it was verified.

1:1 ADRs (for example Wipro (WIT)) get a record too — it changes nothing, it only marks the ratio as checked.

Layer 4: the SEC F-6 filing

Every ADR programme is registered with the SEC on Form F-6 (as the SEC bulletin also states). A ratio change also comes with a filing from this family. Since October 2, 2026:

• for stocks that don't report in dollars, or that have an ADR record, we fetch F-6 filings from the SEC;
• if an F-6 was filed in the last 12 months and our ADR record hasn't been verified since, the market cap counts as unconfirmed and the result is "undetermined";
• a backstop: if the market cap is more than 1,000 times the company's assets, the market cap is unreliable.

On the day this layer went live it caught 6 stocks in total from the halal or doubtful lists (per the change log).

One more check: comparing with the SEC

Beyond currency and ratio, a provider can also get the scale of reported figures wrong (billions instead of millions, say). So assets are compared with the SEC's official XBRL data for the same period. An exact 1,000× or currency-label error is corrected and the reason recorded; an unexplained gap means "undetermined". Foreign issuers file only annual reports (20-F), so they are compared on the annual date.

Takeaways for investors

• An ADR isn't an ordinary share. If another app shows a foreign company's debt ratio as oddly low or oddly high, suspect the currency and the ADS ratio first.
• "Undetermined" is a safeguard, not a bug. When we don't trust the market cap, we don't say "halal". That's the fail-closed principle.
• Check the formula yourself. Every stock page shows the ratios with the actual figures, in dollars: debt ÷ market cap = percentage. See the current status and calculation on, for example, the TSM or Novo Nordisk (NVO) page.
• Status can change — especially for foreign stocks: Why does a stock's halal status change?

We don't hide these errors: each was fixed with the date and reason it was found. Work on foreign companies continues — ADR ratio records are checked by hand, so not every ADR has one yet.

This article is for information only and is not a fatwa. Consult your own scholar for a final religious ruling. Not investment advice either.