(MONEY Magazine) – In December the Securities and Exchange Commission proposed a 4 p.m. ET "hard close" for all fund transactions. The idea is to stymie illegal late trading, but critics howl that the rule would handcuff 401(k) investors. Although 401(k) administrators must record all participant trades by four, these middlemen may take several extra hours to process orders and send them to funds. The new rule could force plans to set a de facto deadline several hours earlier to make the cut. Meanwhile, other investors--such as hedge funds, which are to blame for a lot of the shady fund trading we've heard so much about--could continue to buy and sell until moments before the close.

Here's an alternative with teeth: Close trading in all funds by 2:30 p.m. ET but book them at four o'clock prices. Vanguard founder Jack Bogle has advocated this, and Vanguard already does it with some fund exchanges. A 2:30 close would be the kiss of death to "stale price" market timers--those traders who take advantage of outdated prices for funds that own stocks traded in overseas time zones. Their quick, in-and-out investments cost other investors money and disrupt fund management. These traders won't be able to know for sure whether a fund that looks too cheap at 2:30 won't be grossly overpriced by four. "The wise guys playing these games won't play when there's this much uncertainty," says Dan Dolan, director of wealth management strategies for the Select Sector SPDR Trust. --DAVID FUTRELLE