Kweku Adoboli, a 31-year-old equities trader and the son of a retired Ghanaian United Nations official, remained in custody for a second day as police and bank officials tried to unpick a complex web of trades.
The massive losses he built up could force UBS to reduce the size of its investment banking unit and carry out sweeping job cuts, according to reports in Switzerland.
Thousands of jobs could be slashed from the bank's global workforce of 65,000, newspapers said.
Having plummeted by more than 10 percent when the losses were revealed on Thursday, shares in UBS rallied in early trading on Friday, rising more than 2.5 percent to 10.01 Swiss francs at 9am.
A picture of Adoboli emerged as a fiercely ambitious man who often worked nights in the office but masked the pressures of his job with an amiable personality and a penchant for parties at his trendy bachelor flat.
Adoboli was born in Africa but educated at a £20,000-per-year ($31,500) boarding school in Yorkshire, northern England, where he was head boy.
He graduated from the University of Nottingham in central England with a degree in e-commerce and digital business in 2003.
According to the Financial Services Authority (FSA) watchdog, he joined UBS in 2006 as a trainee investment adviser.
The trader's family said they were "heartbroken" over his arrest.
"From what the reports are saying, it could be that he made a mistake or wrongful judgment," said his father John Adoboli, a former UN staff officer who lives in the port city of Tema in Ghana.
"The family is heartbroken because fraud is not our way of life," he added. "I brought them up to be God-fearing and to appreciate decency."
Adoboli reportedly accumulated unsustainable losses on betting on share prices and currency exchange rates at a time of turbulence on world markets.
The Times reported that he had lost heavily after the Swiss Central Bank's decision last week to devalue the Swiss currency.
In a clue to the mounting losses, he is said to have posted "I need a miracle" on his Facebook page last week.
The arrest comes three years after trader Jerome Kerviel ran up losses of €4.9 billion at French bank Societe Generale through a similar type of trading to the transactions in which Adoboli specialised.
Senior bankers at UBS learned of the losses on Wednesday and lawyers and managers grilled Adoboli at the bank's building near Liverpool Street station in the heart of the City of London financial district, several reports said.
Police were called in when it became clear the breach was more serious.
Many figures in the banking world were surprised that UBS had failed to notice the huge losses.
Manoj Ladwa, a senior trader at ETX Capital, told AFP: "The problem is within UBS because their risk management systems weren't quick enough to pick up that this trader had built very big positions within a very short period of time.
"There should have been limits in place.
"The systems... can vary quite considerably from bank to bank and it's something that the senior staff over at UBS will be addressing over the next few weeks and the next few months."
Following the arrest, ratings agency Moody's said it was considering lowering UBS's credit rating.
Moody's said its review of the rating will focus on "ongoing weaknesses in the group's risk management and controls that have become evident again."
While the losses may be manageable, they "call into question the group's ability to successfully complete the rebuilding of its investment banking operations," the rating agency said.