Interactive Brokers does not sell your order flow
It should be shocking, but it probably is not, that according to the Rule 606 reports mandated by the U.S. Securities and Exchange Commission, no major online broker, with the sole exception of Interactive Brokers, sent more than 5% of its orders to an organized exchange. More than 95% of their orders go to internalizers!
Later: Like, a minute later I read their Rule 606 report, and they do in fact get rebated for sending order flow to dark pools. They also get paid to take institutional orders and trade them against their customers.
For what it's worth, one can't internalize options orders in the same way one can equity orders, purchased options flow must make it to the market. I'm not familiar with the history of this decision but I suspect it's since options are less liquid and have higher spreads, so internalization would get a much worse deal than say auctions. You can rebates from certain exchanges for initiating auctions on them, and can selectively initiate auctions on exchanges which benefit you more, but options orders themselves make it to the market
* They might be first in the queue on a price-time exchange, and so naturally get the order
* They might be on a price-size exchange, and so get some of the fill simply by being present.
* They probably participate in the auction process, and will naturally get some portion of orders that IB initiates
* One has to initiate an auction of the client order, at least in the USA - see https://www.sec.gov/rules/concept/34-49175.htm#P193_52817, specifically "Unlike internalization in the over-the-counter equity market, the options exchanges' rules permit a firm to trade with its own customer's order only after an auction in which other members of that market have an opportunity to participate in the trade at the proposed price or an improved price. This auction provides some assurance that the customer's order is executed at the best price any member in that market is willing to offer". In practice the placing firm will bid for the auction at that price, and non-competitive prices don't get posted since then the firm has to lose money.
* counterparty data is reported by the OCC so regardless of where the order was executed you will know who was the counterparty. It's fairly easy for IB to know whether Timber Hill executed an order, whether or not they intentionally routed it there.
Second, I actually have inside knowledge of a sort about how Timber Hill USA worked before getting purchased by Two Sigma, and they did not work with IB to take customer orders and weren't to happy when they did get customer orders that originated from IB, specifically because people then run around complaining that IB is up to spooky business internalizing with Timber Hill.