Last I remember, "kickbacks" from the option exchanges (called "mandatory marketing agreements" or some such) are legal - even required. It's amazing how the SEC can focus on relatively minor compliance issues, yet still bless the incredibly anti-competitive rules regarding retail orders (market-making, pacing, cancel fees, etc.).
I hope their violations do cost them, so I'm not disagreeing with your point. But, what exactly do you think will cost them? And how much money could it be, in your opinion?
Actually, I was referring to IB, if it's statistically provable that customers are getting hurt by trades being routed to PHIL, if IB will remove PHIL from the smart route even at the expense of payment for order flow. Payment for order flow can vary, but I believe IB is paid about $1 per contract. (See also the difference in price between direct routed trades versus smart routed trades.)