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Should an effect in a side battle cause a removal condition that would normally allow for Special Initiative in the main battle, the characters in the main battle cannot play anything at that time; the side battle must conclude first. After the side battle, if SI were caused, the side being removed may play as if the card causing the side battle were the source of the removal.
The elders have finally reached a consensus on this topic. The following clarification is being added to the REG update that's coming later this week.-If a card with a side battle ability is negated, then all interruptable effects that resulted from cards played during the side battle are likewise negated.-If a character in the suspended battle is defeated by a special ability played in a side battle, it does not have a chance to interrupt the defeating special ability as it would if the special ability were played in the same battle as the character. This is because by the time the side battle resolves, the only abilities that can be targeted for interrupt are abilities in the main battle, which are not directly causing the removal of the defeated character.
...side battles are confusing...