Such a shock could result from a fall in risk appetites of a broad range of participants, perhaps in conjunction with a fall in the liquidity available to hedge funds and other active traders. Hedge funds may be shielded from liquidity demands from their investors, by lock-up periods and withdrawal gates, but they still need liquid funds to meet margin calls on their positions.
Those demands are likely to rise most steeply at times when markets are turbulent and the supply of liquidity, whether from other traders or from dealers and prime brokers, is likely to be reduced. If initial price movements trigger counterparty concerns, this could well generate deeper and more broad-based liquidity erosions that can pose risks of a systemic nature.