The legendary ocean is a field card it's effect is

This card's name is treated as "Umi". Reduce the Level of all WATER monsters in both players' hands and on the field by 1. All WATER monsters gain 200 ATK and DEF.

Gazer Shark is an effect monster it's effect is

You can banish this card from your Graveyard, then target 2 Level 5 WATER monsters in your Graveyard, except "Gazer Shark"; Special Summon both those monsters, but their effects are negated. Immediately after this effect resolves, Xyz Summon 1 WATER Xyz Monster using only those 2 monsters. You can only use this effect of "Gazer Shark" once per turn.

Turn one I used The legendary ocean and summoned Sirenorca because of The legendary ocean effect. Then I used The Cheerful Coffin to send Majoishaleon, and Gazer shark to the graveyard, Next turn Sirenorca was destroyed by my opponents Raigeki. My Next turn I drew a Beautunaful Princess and special summoned a Wind-Up Shark to the field. I then tried to use Gazer sharks effect since Maijoishaleon and Sirenorca are level 5(Legendary Ocean states that in both players hand and field water monsters are reduced by one). Sadly it didn't work, I assumed that because the cards in the graveyard they would be level 5 until put into play. Played until I got defeated(Would of won if the effect worked) and I could never use the effect. I'm not sure if The legendary Ocean is supposed to affect Gazer sharks effect or I'm not understanding Gazer Sharks effect. I feel like this is a bug and it shouldn't affect the graveyard

Also found a Card tip page for Gazer shark, Says I should be able to summon a Rank 4 monster instead of a 5
http://yugioh.wikia.com/wiki/Card_Tips:Gazer_Shark 

Works fine for me.

Do you have a Rank 5 water monster in your Extra deck? If yes then please provide a replay of this occurring and state on which server and game version it occurred.

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So I guess I would need a Rank 5 water monster in my deck. That still feels like a bug though because before I Xyz the two level 5 they would be level 4 so I should only be able to Xyz a rank 4. Guess for the time being I'll just put a rank 5 into my extra deck

To activate Gazer Shark you must satisfy its conditions, which are 2 level 5 Water Monsters in your graveyard and one Xyz Water monster in your Extra Deck that can be xyz summoned with two level 5 water monsters.

So when you have The Legendary Ocean out and satisfy the above conditions this will happen.

You summon both the level 5 monsters which immediately become level 4. Then if you have a Xyz water monster that can be xyz summoned with two level 4 water monsters you can xyz summon it. Else they will just sit on the field on their own.

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Alright thanks. that makes sense. A little bummer but I can get rid of on of my extra deck cards. Thanks!

Silent Honor Ark, Bahamut shark, RagnaZero, Snowdust Giant, Evigishki Merrowgeist and Abyss Dweller. Those are the ONLY monsters you can summon with Gazer Shark's effect in this scenario.

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Yeah, I was trying to get one of those guys out.