July 17 (Reuters) - Trading in India's weekly equity

index options has slumped by a third since the country's market

regulator banned U.S. high-frequency trading giant Jane Street

in the local market earlier this month, exchange data showed on

Thursday.

National Stock Exchange of India - the world's largest

derivatives exchange by number of contracts traded - saw a

nearly 36% drop over two weeks in index options premium

turnover, a key measure of real capital deployed and risk

appetite.

The options premium turnover stood at 396.26 billion rupees

($4.6 billion) on Thursday, which is the day of weekly options

expiry on NSE.

The Securities and Exchange Board of India barred Jane

Street on July 4, saying an investigation found it manipulated

stock indexes through positions taken in derivatives.

NSE's rival exchange BSE also saw its options

premium turnover drop 36.4% below the July 3 levels. BSE index

options expire on Tuesdays.

Emails to NSE and BSE were not immediately answered.

Out of the 10 sessions since the ban, turnover has declined

in six on a week-on-week basis across both the exchanges.

"The notable decline in options premium turnover can be

attributed to the abrupt withdrawal or reduction of activity by

Jane Street, which serves as a primary liquidity provider within

the options market," said Osho Krishan, senior analyst of

technical and derivatives research at brokerage Angel One.

Unless new market-makers step in or volatility rises

materially, turnover is unlikely to bounce back soon, Krishan

said.

Traders also point to a broader lull in volatility dragging

volumes.

"This isn't just a Jane Street story," said Mayank Bansal, a

portfolio manager in India's options market. "It's mostly about

volatility - once that comes back, so will the volumes."

The Nifty volatility index has fallen in nine of

the 13 sessions in July so far, and was hovering near a more

than one-year low.

($1 = 86.0410 Indian rupees)