If the sea level is set to anything below y=46, Squid will be unable to spawn.

Example: If the sea level is set to y=40, since it is below the lowest default level at which squid can spawn (y=45), this makes it so that squid cannot spawn at all. The default range between the regular sea level (y=63) and the lowest point (y=45) has a difference of 18. The lowest point squid can spawn should be moved down with the highest value, sea level 40. So it should be Y is sea level. Y - 18 = lowest point at which squid can spawn. With my preset, 40 - 18 = 22 as the lowest point squid can spawn.

Source: http://minecraft.gamepedia.com/Squid#History 1.0.0