In the American mutual fund world, they call it the hard 4, the unyielding deadline of 4 p.m. Eastern time for customer orders. Fund industry leaders propose it as the best antidote for late trading,one of the crimes that have come to light in the current mutual fund scandals.

The question now is whether regulators can end the abuses without having a cure that is as bad as the disease. The answer? Maybe if all the players can agree on an idea now under serious discussion.

In pre-scandal days, fund companies trusted various order-taking intermediaries banks, brokers, third-party retirement plan administrators to shut their windows to new business at the legal deadline, representing the close of the main U.S. stock markets, then accepted those intermediaries’ orders well into the night. That trust, it turns out, was misplaced, and several big intermediaries and fund companies stand accused of conspiring with market-timing hedge funds to slip orders in long after the cutoff time.

The hard close plan, high on Washington’s list of proposed reforms, would prevent those late trades. But that could hurt the millions of Americans who invest through 401(k) retirement plans that rely on intermediaries to submit orders. To meet the new deadline, those middlemen would have to set even earlier deadlines for their customers, to give them time to process the trades. For investors on the West Coast, that could mean submitting orders even before the business day starts.

A more agreeable treatment may be in the works, thanks to a quiet alliance between two formidable forces Fidelity Investments, the world’s largest mutual fund company, and National Securities Clearing, the obscure giant that handles the bulk of Wall Street’s electronic back office order processing.

They are leading an effort to transform an existing fund-order processing service at the clearing corporation into the kind of time- stamped lock box that would give fund middlemen more time to process orders while ensuring that no late orders could be taken. That would satisfy regulators and industry executives without penalizing investors. And their work recently received an encouraging but little-noticed nod from the Securities and Exchange Commission.

The commission released its proposed hard close rule on Dec. 11, seeking public comment. The rule would require that orders be received by 4 p.m. Eastern time at the fund company or its transfer agent or, in an unexpected alternative, at a clearing agency registered with the commission. The only such agency now registered is National Securities Clearing, a subsidiary of Depository Trust & Clearing, an industry-owned behemoth that handles $917 trillion of financial transactions a year.

There’s not going to be a silver bullet this clearinghouse idea will take a lot of work by a lot of people, Robert Reynolds, vice chairman and chief operating officer at Fidelity, said in a recent interview. But our hope is that we can come out of this with the value proposition for mutual funds intact.

Reynolds credited Fidelity’s chairman, Edward Johnson 3rd, with pushing the clearinghouse approach within Fidelity and in industry circles. In a recent letter to Fidelity fund investors, Johnson explained why: It is the best way we can envision for the industry and regulators to minimize once and for all the chances of anyone beating the system by placing bets after the daily market race is run.

In early October, Johnson chose Janice Morris-Hatch, a partner for operations at Fidelity Ventures, the venture capital arm, as the project leader. Morris-Hatch began researching whether a clearinghouse for fund trades could be created.

She soon linked up with Ann Bergin, a managing director at Depository Trust & Clearing. I was a little confused when I first heard about their idea for a clearinghouse, so I called, Bergin said. And they said, ‘No, no, you’re what we’re thinking of.'”

She added, The discussion quickly changed from ‘We need a clearinghouse’ to ‘There is a clearinghouse, and maybe they can help us.'”

It made sense not to reinvent the wheel, Morris-Hatch said. They have the scale, the system, the links and the knowledge. So there was almost a prototype.

Almost. The trade processing service that the clearing corporation already operates handled 83 million fund transactions, valued at $1.6 trillion, in 2002. It has a separate order- processing service available to retirement-plan sponsors. But it has operated essentially as an electronic pipeline, moving orders from the point of origin to the fund companies, not as a time-stamp verifying exactly when orders were received and from whom.

As those at Fidelity see it, the late-trading cases that have arisen in the scandal illustrate how important it is to have the time-stamps in the firm grip of a neutral, regulated entity and not in the hands of intermediaries who may have a big stake in whether an order from a valued customer makes the deadline.

Still, building a system that can enhance the information that the clearing agency collects about fund orders as they move through its network will not be easy, cheap or quick.

One big question is how to cope with the avalanche of orders pushed into the pipeline near the daily deadline. Another is how to connect that system efficiently to all the people who will need to use it, especially third-party administrators for 401(k) plans and other retirement accounts.

And a third question is how much the system renovations and new connections would cost. No one involved has even attempted an estimate yet.

Since October, Bergin has been talking extensively with broker- dealers, 401(k) plan administrators and fund industry executives to make sure that whatever time-stamping system emerges is practical, effective and credible.

The dealers have to trust us because they are submitting the trades to us, and the funds have to trust us because I’m telling them when the orders came in, she said. And, of course, the regulators have to trust us. Today, I think the indication is that all those parties are pretty comfortable with where we’re going.