Minecraft 1.17-pre3
The third pre-release changes glow squid spawning conditions and fixes more bugs. See the changelog.
Axolotl / Glow Squid Spawning
Underwater cave mobs must spawn within 5 blocks of “natural stone”. Natural stone is the blocks in the base_stone_overworld tag: stone, granite, diorite, andesite, tuff, and deepslate. It does not have to be naturally generated stone. There cannot be any block other than water between the stone and the spawn position.