Sources near to the situation named the suspect as 31-year-old Kweku Adoboli, who had been working as UBS director of exchange traded funds as well as so-called Delta 1 trading, according to his profile upon LinkedIn.
Adoboli was arrested during the night at UBS's Birmingham office, the sources told Reuters.
UBS said it discovered the issue on Wednesday afternoon, but gave no details of the actual alleged trades involved. Police said they had arrested a guy on Thursday after being contacted by the bank and he is at custody.
Adoboli, a University of Nottingham computer science as well as management graduate, was described by a former landlord like a good tenant of a 1, 000 pound ($1, 600) each week apartment close to UBS in London's East End, exactly where he lived until recently.
His father, John Adoboli, a retired Un employee from Ghana, said he knew the financial sector was a higher risk area but he had no doubts about their son's competence and integrity.
"From what the reports say, it could be that he made a mistake or even wrongful judgment, " he told Reuters by phone in the Ghanaian port city of Tema, saying he had to talk to his son before drawing any conclusions.
"I've been calling his phone since and I'm hoping he'd be granted bail soon so I can hear his side from the story, " he said.
UBS stock ended the day time down 10. 8%, its lowest close since March '09, after the bank said it might post a third-quarter loss because of the trading, a huge blow as it struggles to repair credibility after years of crises.
Late in the day time, Moody's said it had placed the bank's long-term debt and deposit ratings on review for any possible downgrade, a further blow to the bank.
Losing effectively cancels out the 2 billion Swiss franc ($2. 3 billion) saving UBS hoped to create in a cost-cutting drive detailed last month involving 3, 500 work cuts.
It also threatens the future of UBS's expense bank, which is being reviewed by chief executive Oswald Gruebel included in a wide-ranging restructuring after heavy losses during the credit crisis along with a damaging scandal over bankers helping rich US clients avoid taxes.
And it undermines claims by the Swiss bank and also the industry that such events are a thing of yesteryear.
UBS, which said no client positions were affected, is scheduled to keep an investor day on Nov. 17 at which it had been expected to announce a major overhaul of the expense bank.
"The matter is still being investigated, but UBS's current estimate from the loss on the trades is in the range associated with $2 billion, " the bank said in a declaration.
UBS employed almost 18, 000 people in its investment bank at the conclusion of June, most of them outside Switzerland, particularly in London and america.
"(This) is a staggering demonstration that all the clever systems how the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they would like to, " said Chris Roebuck, Visiting Professor at Cass Company School in London.
"It will yet again confirm to nearly all shareholders who are Swiss that investment banking is not really 'proper' banking, as private banking is. "
UBS had started to see client confidence return this year after it needed to be rescued by the Swiss state in 2008 following substantial losses on toxic assets held by its investment financial institution. The bank has had a history of major risk management glitches then repeated pledges to fix risk systems.
KERVIEL
Any losses in UBS's investment bank risk scaring rich clients and prompting an additional flight from its huge private bank, the core of its business that was previously the world's biggest wealth manager but has slipped in order to third place.
"This loss has the scope to possess a material impact on the perception of UBS's private financial institution, impacting its future operating trends, " Goldman Sachs analysts Jernei Omahen and Peter Skoog said inside a note.
"Today's announcement therefore adds to the long listing of arguments (and pressure) for a substantially smaller investment financial institution. "
UBS's news caused disbelief among market operators.
The final similar case was when Jerome Kerviel, then a investor at Societe Generale, racked up a $6. 7 million loss in unauthorised deals revealed in 2008. Kerviel was sentenced to 3 years in prison in October 2010.
Both Kerviel and Adoboli were exactly the same age when the scandal broke and both worked along with so-called Delta 1 products, derivatives which closely track the underlying securities and give the holder a good way to gain exposure to several asset classes. Examples consist of equity swaps, forwards, futures and exchange-traded funds.
"It is amazing this is still possible, " said ZKB trading analyst Claude Zehnder. "They obviously have trouble with risk management. Even when the amount isn't so higher, it is once more a loss of confidence that casts UBS inside a poor light. "
Switzerland's financial markets regulator FINMA said it absolutely was informed of the case and was in close connection with UBS, while a regulatory source said Britain's Financial Services Authority is at close contact with Swiss authorities.
HEADS TO ROLL?
The bank has previously two years tried to rebuild the investment bank that nearly felled it throughout the financial crisis. It needed a state bailout after large losses on US subprime mortgage-related securities.
Under Gruebel and investment bank boss Carsten Kengeter -- themselves both once traders -- it hired countless traders in a bid to boost its bond company.
Several analysts said the incident made it more likely Kengeter will be in the firing line, while Gruebel could step down at some point.
"Gruebel saved the bank from destruction, so his main job is performed. It is only a matter of time before he or she steps down. If it means he leaves a small sooner, it does not change a lot. But the investment bank is a disaster, and the knives will be out for Kengeter, inch said Peter Thorne, analyst at Helvea.
Former Bundesbank head Axel Weber is a result of join the UBS board in May and take more than as chairman in 2013.
The weak performance of the actual investment bank and tough capital rules in Switzerland experienced already attracted intense scrutiny over how UBS will deal. Analysts have called for a retrenchment, while Swiss politicians are debating steps to make sure big banks can weather future crises without needing to be bailed out by the state.