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This may be an old ruling but isn't it if you have multiple characters in battle and your opponent discards one, if you have initiative with the remaining character you then get special inish with the discarded character. Is this still the case? if it is, then wouldn't that ruling apply to this situation if you have inish after the character has been exchanged?
Because abilities have to complete you would not have a chance to play a negate with a removed character if there are 1 or more still in battle. So say you have White Boaz banded to Purple Elders of the City and I block with Medium in Endor and replace your Boaz with say a Blue Benjamin. It would be your initiative because it is a stalemate situation. But, it would not be your special initiative because I didn't remove your last character from battle and you could now only play a white or blue enhancement, not purple.
I wanted to revisit this thread because I believe the answer to the original question has since been ruled to cause SI if the exchange removes your last Hero from battle.
I don't see how it can be ruled that Medium gives SI. Special initiative doesn't trigger when your last Hero would be removed, it triggers when an ability would result in you having no Hero in battle after it completes. Medium's ability always leaves you with a Hero in battle when it completes.