The move is part of a major shake-up at the bank which will also see it shrink its investment banking division to reduce its risks.
“Oswald Gruebel feels that it is his duty to assume responsibility for the recent unauthorised trading incident,” Chairman Kaspar Villiger said.
London-based trader Kweku Adoboli has been charged over the affair.
Mr Adoboli was arrested last week and charged with fraud and false accounting. He has been remanded in custody until 20 October.
Mr Adoboli, from east London, made no application for bail and gave no indication of how he would plead when he appeared in court on Thursday.
His lawyer, Patrick Gibbs, said Mr Adoboli was “sorry beyond words for what had happened”.
“He went to UBS and told them what he had done, and stands now appalled at the scale of the consequences of his disastrous miscalculations,” he said.
UBS said Europe, Middle east and Africa chief Sergio P Ermotti would take over as interim chief executive.
The trading losses are an embarrassment to the bank which is still recovering from its near collapse during the 2008 financial crisis.
UBS’s investment bank will be shrunk significantly – it will take less risk, have a smaller balance sheet and use less capital”
The firms biggest shareholder, Singapore Investment Corp (GIC) has expressed its “disappointment and concern” at lapses at the bank which may have led to the losses.
The bank’s board said it would seek to adopt “mitigation measures” to deal with any failures.
Mr Villiger also promised the bank would be more ‘client centric’ in future.
“The Investment Bank will be less complex, carry less risk and use less capital to produce reliable returns,” he said.
This is likely to mean the bank will take less risk, especially in its investment banking division.
Mr Villiger praised the work of Mr Gruebel, 67, since he was brought out of retirement in 2009 to reform UBS after it almost collapsed under the weight of more than $50bn of toxic assets.
A regular UBS board meeting that had been scheduled to finish on Friday is continuing by conference call, reports said.